Continental Buys `Brake And Chassis' Unit From ITT Industries
27 July 1998
Continental Buys `Brake And Chassis' Unit From ITT Industries
A Historical Milestone On The Way To Becoming A System Supplier For The
Global Automotive Industry
CHARLOTTE, N.C., July 27 -- Continental AG today issued
the following announcement:
1. Facts about the purchase
Continental AG, Hannover, Germany, has signed an agreement with ITT
Industries Inc. , White Plains, U.S.A., on the purchase of the
latter's "ITT Automotive Brake and Chassis" (B&C) operations. The purchase
price amounts to US$1.93 billion (DM3.47 billion)*. Conclusion of the
agreement is still subject to the approval of the responsible antitrust
authorities.
To finance the purchase, Continental AG is planning to increase equity
capital in the amount of approximately 20% of the purchase price and to take
up long-term borrowed capital (convertible bonds, long-term loan/borrowings)
totaling approximately 60% of the purchase price. Most of the remaining 20%
will be provided out of liquid funds.
2. ITT Automotive B&C Operations
ITT Automotive B&C, headquartered in Frankfurt/Main, Germany, is a
globally recognized partner for brake and chassis systems to the automotive
industry. About DM3.3 billion of total sales amounting to DM3.8 billion are
made directly with that industry. Its customers include all the major vehicle
makers. The replacement business accounts for just under 10% of total sales.
In the disk brakes market, ITT Automotive B&C occupies the No. 1 position
worldwide, holding 2nd place in anti-lock braking systems (ABS) and brake
boosters. Traction control systems (TCS) and electronic stability programs
(ESP) are also included in its development program and product range.
About half its sales are attributable to business in the fields of ABS, TCS
and ESP with a market share of 26% worldwide and 39% in Europe. For the disk
brakes business (30% of sales) market shares are 18% and 35% respectively.
ITT Automotive B&C generates 63% of its total sales in Europe, 25% in North
America, 7% in South America, and 5% of its sales go to Asia.
Employees at ITT Automotive B&C number 10,775. The core of its operations
is the former company Alfred Teves GmbH, Frankfurt. Up-to-date manufacturing
facilities with a low vertical integration in Europe, South America and in the
U.S.A. employ 51% of the work force in Germany, 23% in Europe, 15% in North
America and 11% in South America. There are 16 plants in all, added to which
are joint ventures in Spain and Japan as well as development centers in
Frankfurt and Detroit. Advanced expertise is available in the development of
high-tech electronics software with 110 employees; the two test centers in
Michigan and Sweden are highly appraised by the auto industry. The highly
efficient development section for electronics hardware and software has strong
partnerships with leading firms of the electronics industry (Motorola,
Philips, Siemens, Temic, Texas Instruments).
In 1998, sales are expected to reach about DM3.8billion, with EBITDA
(earnings before interest, taxes, depreciation and amortization) amounting to
12.7% of sales. "One of our declared aims is to get this unit to a high level
of profitability. The technological and commercial potentials are simply
there - and we shall tap those potentials accordingly," said Dr. Hubertus von
Grunberg, Chairman of the Executive Board of Continental AG.
3. Continental and ITT Automotive B&C Fit Well Together
For Continental, the purchase of ITT Automotive B&C is a historical
milestone on its way to becoming one of the leading technology and system
suppliers for the automotive industry. Initial positive responses from major
customers are confirmation that the course pursued by Continental is the right
one. It will spur more quickly the transformation of the Corporation's
conception of itself and of its image from a tire maker to a supplier of
complete systems.
Dr. von Grunberg: "It is foreseeable that the electronically controlled
chassis will be regarded as a system unit in the future. ITT Automotive B&C's
technological proximity to the Continental Automotive Systems Group, which was
established in 1994, as well as to Continental's two core areas of expertise,
namely Tires and Industrial Rubber Products, gives ample opportunity for
profitable growth through the exploitation of synergies and technological
know-how."
Continental is concentrating on the following developments in this field:
- Automatic ride height control (already in production)
- Sidewall torsion sensor system (SWT) - "the intelligent tire"
- Tire pressure monitoring system
- Electronic chassis control
- Electromechanical brake system
- Active and passive noise control systems
- Integrated starter alternator damper (ISAD) system
Acting as a link between the road and the vehicle chassis, the tire is a
key contributor of information for today's growing number of electronic
chassis management systems (ABS, TCS, ESP). Using the tire not only to
transmit forces but also as an "information provider" will afford a
significant technical lead. That lead will be strengthened by concentrating
the synergies from the tire technology, vibration engineering, acoustics,
electronic control and sensor activities of both organizations. Direct access
to development capacities for electronics and sensor devices will speed up
introduction of the "intelligent tire." The tire with sensor functions will
become an integral component of chassis control systems like ABS, TCS and ESP.
"We shall focus intently on the ESP system, a field in which we anticipate
overproportionate profit-earning opportunities," explained Dr. von Grunberg.
Electronics and sensors from ITT Automotive B&C also play a role in run-flat
tire systems and electronically controlled engine mounts.
With combined sales totaling DM16 billion, the volume of sales to the
world automotive industry will come to about DM7 billion, which will
strengthen Continental's position as "first-tier supplier" and development
partner. The future is expected to bring significant competitive advantages
with greater earnings potential owing to this unique form of combination
between tires and brake/chassis electronics. There will be an increased
acceptance among the global vehicle manufacturers on account of this intense
systems expertise. Continental's core business areas of Tires and Industrial
Rubber Products will be strengthened and its "breakout" from the No. 4 ranking
in the world's tire business will be achieved through differentiation towards
competence in chassis management. The low presence so far of Continental
outside of Europe and North America will now improve as well.
Continental General Tire Inc. is headquartered in Charlotte, N.C. and is a
wholly owned subsidiary of Continental AG of Germany, the world's fourth
largest tire manufacturer. It is a major supplier to the original equipment
and replacement tire markets, selling Continental and General brands in the
United States. With annual sales of approximately US$1.4 billion, the company
has 6,800 employees in Bryan, Ohio; Charlotte, N.C.; Mayfield, Ky. and Mt.
Vernon, Ill.
* US$1 = DM1.80