Conti is in position to create megasupplier

By Jens Meiners and April Wortham, Automotive News Europe

An acquisition by Continental of rival Siemens VDO Automotive would propel the combined group to the top tier of the global supplier industry.

According to estimates, a merged Continental/Siemens VDO would have combined 2006 sales of more than €25 billion.

That compares with 2005 sales of €26.3 billion at Robert Bosch, the world's largest automotive supplier.

Moreover, if the German suppliers merged, they would become the second-biggest supplier of parts to the European automotive industry.

Based on data compiled in US dollars by Automotive News Europe, Continental and Siemens VDO together had $13.5 billion in 2005 sales to European automakers. By comparison, No. 1 Bosch had 2005 sales of $19.6 billion and No. 2 Faurecia had $11.3 billion.

"Siemens VDO would be a very good fit for us; there are few areas of overlap," Karl-Thomas Neumann, CEO of Continental Automotive Systems, told Automotive News Europe.

Continental Automotive Systems is a unit of Continental.

Siemens VDO parent Siemens has said it wants to sell between 25 percent and 49 percent of the automotive supplier on a public stock exchange. Continental has expressed an interest in Siemens VDO. But Continental officials declined to comment on whether the company would be interested in a minority stake.

A source close to Continental CEO Manfred Wennemer said: "They are looking closely at a takeover."

Industry watchers in Europe and North America say Siemens would like to shed all of its successful automotive unit.

"The announcement to go for an IPO in the autumn is a signal to the market that Siemens is ready to talk about selling off Siemens VDO," said Albrecht Denninghoff, an analyst at Commerzbank in Frankfurt.

Combining the companies would result in €300 million in potential savings in areas such as r&d and purchasing, according to a report from investment bank Morgan Stanley.

Putting it in play

Siemens VDO is not a core business for its parent. However, since announcing plans for an initial public offering of the automotive business on January 25, Siemens CEO Klaus Kleinfeld has repeated that the company wants to maintain a majority stake in Siemens VDO. Several analysts say the statement was at least partially intended to attract buyers.

If that's the case, it worked.

News that Siemens would sell between 25 percent and 49 percent of Siemens VDO on a public stock exchange had barely broken when Continental declared its interest.

Continental has set aside €4 billion for acquisitions. Analysts estimate Siemens VDO is worth between €5 billion and €7 billion.

Kleinfeld has talked with Continental boss Wennemer on the phone, but the contents of the conversation were not disclosed.

Germany-based Siemens VDO spokesman Richard Backhaus said the company is swiftly moving toward the IPO, "possibly in the 2007 business year." That means it would take place before September 30. Backhaus said Siemens VDO wants to raise cash for new technology r&d and for Asian expansion.

Bernd Bohr, head of Bosch's automotive business, told ANE sister publication Automobilwoche on Wednesday, January 31, that he is not afraid of a potential Continental-Siemens VDO merger. Said Bohr: "We welcome serious competitors."

From Automotive News Europe (A Crain publication)