Continental readies powertrain unit spinoff

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FRANKFURT — Continental said it would prepare a spin-off of its powertrain division as an alternative to a listing, giving the German supplier additional options for separating the unit amid worsening market conditions.

Continental wanted to list its powertrain division in summer 2019, but in April the company reported a sharp drop in profits and pushed back plans for a stock market listing, blaming a downturn in auto production.

With a spinoff, the implementation of a new corporate structure will not be dependent on the volatile stock market.

“The Executive Board of Continental AG has decided to consider a spin-off of up to 100 percent of the Powertrain division with subsequent listing as an additional alternative to the potential partial IPO,” the company said in a statement on Monday.

Continental said that although a partial IPO of the division was its preferred option, it would review whether a legal separation without raising fresh capital was an alternative way forward.

The auto markets have shown little sign of recovery, with sales in China – the world’s largest car market – showing no indications of improvement, hitting the profits and share prices of a raft of car manufacturers and suppliers.

“This approach ensures that our Powertrain business will be able to embark on its promising course under the best possible conditions in 2020, regardless of whether it does so via a partial IPO or a spin-off,” Continental CEO Elmar Degenhart said.

Continental, which makes auto parts and tires, will break itself up into three divisions: Continental Rubber, Continental Automotive and Powertrain, under a new holding company structure starting in 2020.

The restructuring separates Continental’s autonomous and connected vehicle technologies businesses from its diesel and gasoline engine technologies division.

Continental ranks No. 4 on the Automotive News list of the top 100 global suppliers with estimated worldwide sales to automakers of $37.8 billion in fiscal 2018.

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