Shares of Continental rose more than 7 per cent on Tuesday after a report suggested the group – Europe’s largest publicly-listed automotive supplier – may overhaul its business structure and separately lists its divisions.
According to a report in Bloomberg, Conti is in early stage talks with advisors that could lead to a break-up of the company. The idea would be to create a holding company and then separately list its two units: tyres and automotive. Or it could spin off some operations and merge them with a rival — as suggested last year when rival Delphi tried to sell its powertrain division to Conti, according to two people.
Conti declined to comment on the report.
The apparent talks come at a time when investors are shunning conglomerate structures and instead favouring pure-play companies, in the belief that focused businesses are more agile and better able to respond to fast-moving challenges.
Siemens, Europe’s largest conglomerate, is already in the process of spinning off minority stakes in multiple divisions, in what it calls “a fleet of ships” model. Daimler, the parent of Mercedes-Benz, is preparing to revamp its structure, possibly by splitting off its trucks division from its cars group, in the hopes of being better able to respond to a future of electric cars. Thyssenkrupp, Germany’s largest steel producer, is in the midst of exiting the steel business altogether to focus on making capital goods.
A person familiar with the issues at Conti said nothing has been decided but that early-stage talks were a natural result of the “Powertrain Strategy 2020+” it released last April.
The big issue for all major automotive suppliers is what to do about powertrain units currently devoted to internal combustion engines. Conti has projected that growth for combustion engine cars will grow between now and 2025, but after that it looks reasonably certain that demand will increasingly shift to hybrid and pure-electric powertrain technology. The dilemma is how much to invest in incremental improvements needed for the next decade, which might come at the expense of taking an early lead in new technologies.
After talks between Delphi and Conti failed last year, Delphi announced in May it would spin out its powertrain arm as a separate business. That move garnered immediate investor support, with shares rising 11 per cent.
Conti, whose shares are now up less than 4 per cent following an initial spike, is due to release preliminary results later on Tuesday, following a presentation at the Consumer Electronics Show in Las Vegas.