Schaeffler Considering Restructuring
We were half joking when we said 2 days ago that 2nd largest auto-supplier in Europe Schaeffler-Continental may go bankrupt. However, today Bloomberg is out with an article discussing the company's attempts at a debt-for-equity swap, which may end in the downfall of not only bearing-maker Schaeffler and its target Continental AG, but possibly the bank underwriting syndicate ala Lyondell. The whole situation may be worthy of its own financial soap opera one day. It has all the elements:
- small company acquiring huge company
- shady board dealings and scandals
- heart-felt appeals to portion of shareholders to go with acquiror's "low-ball" bid
- shareholders' realization that low-ball bid is actually "high-ball" and mass subscription to bid
- getting contractually forced to buy 90% more of shares than desired
- financial system unravelling months after deal closure and inability to place acquisition debt
- OEMs realizing SAAR has been artificially high by 50% in credit bubble and telling suppliers to leave them alone, resulting in massive drop in profit and earnings
- combined company so hideously overleveraged it needs to amend covenants while new M&A smell is still fresh
- more heart-felt appeals, this time to German government, to bail company out, only to get glass of water thrown in face
- large bank consortium consisting of RBS, UBS, Commerzbank, Dresdner, Landesbank and UniCredit realizing they are stuck with another huge credit loss
- having hands tied and contractually unable to raise new equity or debt
In a way we feel bad for Maria-Elisabeth Schaeffler. After all her husband (whom she married in 1963 and only inherited Schaeffler subsequent to his death in 1996) told her not to bother taking business lessons way back when. In retrospect they may have been well worth it now that the company her family had built up is about to be sold off or given away to creditors.
A pragmatic person may say at 15 points up, Continental 5 yr CDS has the makings of "cheap"
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