Schaeffler/Vitesco: complex deal greets era of fewer moving parts

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The mechanics of power have changed in road vehicles thanks to electrification. They are unchanged in corporate transactions, with big shareholders calling the shots. This is illustrated by a tender offer from Germany‘s Schaeffler for local peer Vitesco Technologies.

The deal is a first step in bringing the two together to create an automotive parts supplier with annual revenues worth €25bn and better placed to cope with a technological shift that is reducing the number of components used on each vehicle.

That should benefit the Schaeffler family, which is driving the transaction forward by offering its 49 per cent stake in Vitesco at nil cost to keep a lid on deal expenses. Schaeffler is offering €91 per Vitesco share, representing a 20 per cent premium, to minorities.

Schaeffler, which is 75 per cent owned by the founding family, would then absorb Vitesco through an all-share merger. Vitesco minorities who have not taken cash in the first transaction can stay on for the ride via the second.

They might be put off by knowing that outside investors buying into Schaeffler since its 2015 listing have received no voting rights. But once the merger is completed, all shares will be equal and the free float would rise to 30 per cent. Better governance will open the door to broader index inclusion. 

It is a decent plan, but value may come only as a delayed delivery. E-mobility accounts for just 9 per cent of pro forma sales but will rise to almost one-third by 2030 as EVs proliferate. Combustion engine-related sales are forecast to fall from more than half to less than one-third.

Expected cost savings of €500mn, worth about €2.3bn to Schaeffler taxed, capitalised and after charges, are not fully due until the end of the decade. The addition of debt-free Vitesco means leverage will fall. 

Schaeffler hopes it is buying at the bottom. Valuations in the sector have been under pressure from strikes at US carmakers and lie at multi-decade lows. The tender for Vitesco is at just over three times 2024 ebitda. That is a further reason for minority shareholders to buckle up for the long haul and wait for shares.