Continental AG is to raise just over EUR1 bn (USD1.44 bn) in fresh equity from a rights issue in a bid to boost its balance sheet.
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The company said its supervisory board, which is dominated by its largest shareholder, Schaeffler Group, had approved the issue of 31m new shares at EUR35 (US$51) each, which will raise its capital by nearly a fifth.
The price represents a 14% discount on its closing price of EUR40.77 ($59.43) on Wednesday and is less than half the EUR75 ($109.32) Schaeffler paid late in 2008 to acquire 90% of the company’s stock.
Continental originally wanted to raise up to EUR1.5 bn (USD2.19 bn) to pay down debt, but the sale of any more shares would have diluted Schaeffler’s stake below a key control threshold.
Reuters reports that a syndicate led by Deutsche Bank , Goldman Sachs International and JP Morgan Securities agreed to underwrite the share offer, and have already found investors willing to subscribe to about three-quarters of the placement.
Existing shareholders will receive the option of buying two new shares for every 11 already owned, and these rights can be traded between 12 and 21 January and subscribed until 25 January.
The new stock will also be fully entitled to dividends for last year, although Continental agreed with its creditors back in January of last year to cap its payouts for 2009 and 2010 at EUR323m ($470m)
Continental said in a statement: “Upon the completion of the rights offering, these major shareholders are expected to hold an aggregate of 75.1% of the increased share capital of Continental AG.”
Reuters noted that the MM Warburg and Metzler banks hold about 40% on behalf of Schaeffler as part of an investor agreement with Continental struck in August 2008 that also prevents the family-owned bearings maker from gaining direct access to its cashflows until 2014 through a so-called domination agreement.
Plans for the share issue follows a deal struck in December when Conti secured a EUR2.5 bn ($3.6bn) financing deal with over 50 syndicated creditors to ease liquidity.
The company has been pushing for the past year to issue new shares to help reduce its EUR9.5bn ($13.8bn) in net debt – more than twice its shareholder equity – amassed following the acquisition of auto electronics company VDO from Siemens in 2007.
