Gearing up to take over an auto company on the eve of a recession might look risky. For $4 billion family-controlled industrial group Schaeffler(SHA_p.DE) the $3.8 billion acquisition of Vitesco Technologies (VTSCn.DE) makes sense, not least because they are both controlled by the same German family.
Car suppliers will get squeezed as the world shifts to battery rides and competition from China picks up. Adding Vitesco’s expertise in devices that convert direct current to alternating current should take Schaeffler’s sales from electric cars to as much as 30% of the group total by 2030. The merger will be done through a tender for the 50% of Vitesco’s stock not held by the family, then a merger with what's left.
Vitesco’s forecast operating profit after tax in 2024 corresponds to a 13% return on invested capital on the 3.7 billion euro enterprise value implied by the tender price, Breakingviews calculations using LSEG data suggest. Cost synergies on top could be worth 3.5 billion euros in present value terms.
As part of the merger, Schaeffler will adopt a more shareholder-friendly structure with equal voting rights. That might help unloved units like industrial bearings or vehicle repairs get more highly valued. That, plus the synergies, suggests shareholders that don’t cash out at the 20% offered premium have something to cheer. Still, Schaeffler will be hoping that enough of them take the money upfront. (By Neil Unmack)
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