Schaeffler auto deal has multiple value drivers

Schaeffler AG

09/10/2023 12:45

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       LONDON, Oct 9 (Reuters Breakingviews) - 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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 (Editing by George Hay and Streisand Neto)
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