Schaeffler offers to buy Vitesco in $3.8 billion bid to create EV supplier giant

Schaeffler is offering to buy electric-vehicle and combustion-car component maker Vitesco Technologies in a 3.64 billion-euro ($3.8 billion) deal.

Schaeffler and Vitesco have similar technology portfolios in the field of e-mobility. Vitesco currently does most its business with combustion-engine components but has recently been collecting orders mainly for its electric-drive division. Schaeffler is still struggling with the shift to electric motors.

The billionaire Schaeffler family controls auto-part makers Vitesco, Schaeffler and Continental and is reshaping its industrial empire as the shift toward EVs accelerates.

"With the business combination, a leading motion technology company with four focused divisions and revenues of approximately 25 billion euros will be created," Schaeffler said.

The transaction could lead to 600 million euros in "sales and cost synergies" by 2029, the supplier said.

The deal would combine Schaeffler's mechanical presence with Vitesco's capabilities in power electronics, Schaeffler CEO Klaus Rosenfeld said on Monday.

The combined company, which would have ranked as the world's 11th largest supplier by annual parts sales to automakers in 2022, will have the Schaeffler family's holding firm as a joint shareholder and employ more than 120,000 people.

The offer was not discussed with Vitesco in advance because of overlaps in the membership of the two companies' supervisory boards, but Schaeffler was confident that it would lead to a "friendly merger," Rosenfeld said.

Vitesco confirmed the offer in a statement and said its board would decide on next steps.

Schaeffler expects to finance about 1.8 billion euros of the offer, following an agreement with two family-controlled entities that hold 49.9 percent of Vitesco. Debt levels as part of the takeover are expected to start declining from next year, Rosenfeld said.

The Schaeffler family's holdings in Vitesco and Continental stem from their debt-fueled takeover of Continental in 2008. The move, started just before the global financial crisis hit, nearly brought down the company, which had to ask for emergency support as credit markets seized up. The family still holds 46 percent of Continental, which spun off Vitesco in 2021.

North American impact

The acquisition would create the 16th-largest supplier by parts sales to automakers in North America, with a combined annual sales in the region of $4.86 billion in 2022, according to the Automotive News Data Center.

Combined, the companies own 19 plants in North America, including 12 in the U.S., three in Canada and four in Mexico. Schaeffler, which also makes products for industrial use outside the auto industry, accounts for 13 of those facilities, with Vitesco making up the rest.

Sales in the region account for a similar amount of each companies’ respective global sales, with Vitesco’s sales in the Americas accounting for about 26 percent of the supplier’s 2022 overall sales and Schaeffler’s sales in the region making up 22 percent of its overall total.

The news comes as the companies attempt to re-position their North American footprints to account for an increase in EV production. Vitesco, for example, last month said it planned to open a fifth U.S. factory by 2026 to help it meet surging demand for EV-related products.

That factory would be similar in size to its plant in Seguin, Texas, which employs about 1,700 people and accounts for about $1 billion in annual sales, Vitesco North America CEO Sandy Stojkovski said during a media roundtable at the Detroit auto show on Sept. 14.

“Because of all the new business we’ve been awarded, as we look at the outlook for the North American region, it implies that we would be doubling our sales in the region,” Stojkovski said. “That creates a bit of a problem for us, which is that we don’t have enough production capacity in the region to handle this new business.”

A spokesperson for Vitesco North America declined to comment when asked how the offer could impact its North American business. The company, whose largest customers in North America are the Detroit 3 and truck engine maker Cummins, employs about 7,300 people in the region.

In an email, a spokesperson for Schaeffler said it was “too early to have a thorough analysis of our combined North American operations” but noted that there are “complimentary products in electric mobility between both organizations.”

Schaeffler manufactures bearings, engine, chassis and transmission components for ICE vehicles, hybrids and EVs in North America, the spokesperson said, while Vitesco’s latest EV-related programs include battery management systems, thermal management modules and 800-volt silicon carbide inverters.

The companies have already been active in the M&A market. Vitesco, for example, said in August that it has completed “more than 10” transactions since September 2021 that include divestures in the internal combustion engine technology, accounting for about 500 million euros ($527 million) in annual sales.

“We do our homework,” Vitesco CEO Andreas Wolf said last month. "It’s clear if you want to wind down a business, or if there’s a possibility to sell this part or another part or merge or whatsoever, we do so... It’s kind of just giving a push towards being faster in the electrification area.”

Simplified shareholder structure

Rosenfeld, who has been Schaeffler CEO since 2014, said the Herzogenaurach-based company will take steps to simplify its complex shareholder structure.

This includes converting Schaeffler's free-floating non-voting preference shares into common stock with voting rights, paving the way for the company to be included in Germany’s MDAX Index.

The family has agreed to eventually sell its Vitesco shares to Schaeffler, Rosenfeld said. The family are among German's richest, with Georg Schaeffler and his mother Maria-Elisabeth Schaeffler-Thumann's combined wealth estimated at 7.8 billion euros.

Georg Schaeffler, chair of the Schaeffler supervisory board, also sits on Vitesco's board, as does Austrian businessman Siegfried Wolf, who also owns 5 percent of Schaeffler.

Schaeffler is offering 91 euros ($96.02) a share in cash -- 21 percent more than Friday's closing price. Schaeffler said the offer will not be subject to a minimum acceptance rate.

Vitesco is valued at 3.64 billion euros.

Schaeffler expects the tender offer to be closed in January 2024.

The deal with Vitesco could foreshadow further moves to reshape the Schaefflers' industrial holdings.

Continental CEO Nikolai Setzer recently told German newspaper Welt am Sonntag that he is open to selling businesses if it will help create value.

The supplier is already considering divesting parts of ContiTech, a smaller unit that also makes car parts including drive belts and engine pulleys.

Schaeffler ranks No. 28 on Automotive News' 2023 list of the world's top 100 suppliers, with annual parts sales to automakers of $10.20 billion in 2022.

John Irwin, Bloomberg and Reuters contributed to this report