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Equity Valuation: Models from Leading Investment Banks by Armin Varmaz, Thorsten Poddig, Jan Viebig

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33

Example: Continental AG

Before running through an LBO analysis of Continental AG, it is worth setting some context on the situation that arose around the company starting in late July 2006. After providing some background information, we will discuss the key LBO parameters and run you step-by-step through our LBO analysis of Continental AG.

33.1 BACKGROUND

Continental (“Conti”) is today one of the world's leading automotive industry suppliers, with extensive operations in rubber, tire, braking technology, driving dynamics control, electronics, sensor systems and telematics.

On September 19, 2006, Conti announced it had been approached by a private equity investor in connection with a bid for the company, but that the talks had lapsed at an early stage. On the same day, the Financial Times reported that a Bain Capital-led consortium had approached the company with regard to the buyout at a generous premium. On September 27 at the Paris auto show, Conti informed the market that an unidentified private equity firm had made a “reasonable” offer for the company. Management had determined that the firm had no plans to break up the company and that its strategic plans were aligned with the management's. However, talks ended after the shares rose ca. 11% in the week of discussions. Given the stock price progression, UBS believed at the time that the talks took place during the second and third week of July. Applying an assumed 20–25% premium to the stock price range of EUR 72–74.5 that ...

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