Continental is moving forward with plans to separate its underperforming automotive parts division, despite ongoing challenges related to recalls of faulty braking systems, according to sources familiar with the situation.
The German manufacturer has solicited proposals from investment banks to facilitate the spinoff of its automotive unit. Requests for proposals were issued earlier this month, and the process continues even following the recent recall announcement.
Shares of Continental took a hit last week when BMW revealed the escalating costs of a recall affecting 1.5 million vehicles due to issues with Continental’s braking systems, estimated at nearly €1 billion. A spokesperson for Continental indicated that they anticipate brake-related costs will reach mid-double-digit millions of euros.
Bloomberg Intelligence values Continental’s auto division at approximately €4.3 billion, based on a sum-of-the-parts analysis. However, insiders suggest that the timeline for the spinoff could be extended, potentially delaying the formal separation of the automotive business from the rest of the company.
This spinoff is poised to be one of the largest restructuring efforts in Continental’s 150-year history. Shareholders will receive stock in the new, independently listed entity without any new capital being raised. A decision regarding the spinoff is expected in the fourth quarter of this year, with the listing anticipated by the end of 2025.
The automotive sector faces significant hurdles, including high investment costs and declining demand. Increased interest rates are also affecting car purchases, and sales in key markets like China have not met expectations.
Ongoing discussions regarding the spinoff may evolve, and the specifics of the plan are still being finalized. Continental remains confident in its preparations for the spinoff, emphasizing the importance of strong operational foundations and a solid business case for the newly independent entity.
