July 18, 2018 / 3:06 PM / a year ago

UPDATE 2-Continental AG restructures, prepares Powertrain for 2019 IPO

* Partially listed Powertrain free to strike alliances

* Continental says may expand in area of mobility services

* Continental says sees robotaxi makers as potential clients (Adds CEO comments, analyst comment, further detail on new structure)

By Edward Taylor

FRANKFURT, July 18 (Reuters) - German auto supplier Continental on Wednesday said it will list its Powertrain unit as early as mid-2019 as part of a broader restructuring in response to far-reaching shifts in the auto industry towards electric and self-driving technologies.

Continental, which makes auto parts and tyres, 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 petrol engine technologies division.

The move follows a broader trend by conglomerates including ThyssenKrupp and General Electric to slim down and as rival auto suppliers Autoliv and Honeywell also separate combustion engine assets from autonomous vehicle parts of their business.

The car industry and its suppliers, facing a regulatory crackdown on diesel emissions, are shaking up their businesses to better adapt to different growth opportunities in the two areas.

Continental's Powertrain division, which includes parts needed for electronic vehicles as well as for traditional combustion engine powered cars, could have an enterprise value, of between 5 and 9 billion euros on a standalone basis, NordLB analyst Frank Schwope said.

The unit has annual earnings before interest, tax, depreciation and amortisation (EBITDA) of almost 900 million euros on sales of 7.5 billion euros.

Peers such as BorgWarner and Delphi trade at roughly 7 times their core earnings or EBITDA.


Continental will list part of its Powertrain division to pave the way for it to strike alliances with rivals or participate in consolidation, chief financial officer Wolfgang Schaefer said.

Continental has no plans to fully divest the business, the company said.

The carve-out of Powertrain will lead to estimated operational costs of 350 million euros, Continental said, adding that a large part of that will be incurred in 2018 and 2019.

Continental shares were around 1 percent higher on the day by 1440 GMT.

The company also said the sale of a minority stake in the Rubber group, possibly through a stock market flotation, is an option for the future in order to raise funds for other expansion opportunities.

Continental said it sees expansion opportunities in the development of robotaxis for ride-hailing companies. Earlier this month Continental signed an agreement to develop cars together with China's ride-hailing business Didi Chuxing.

"The future manufacturers of robotaxis are interesting customers for us," Chief Executive Elmar Degenhardt said on Wednesday.

Continental further said its Chassis & Safety and Interior divisions will be reorganised into two business areas: Autonomous Driving Technologies and Vehicle Networking Technologies. Both will be part of the Continental Automotive unit.

Continental said it may also seek to invest in solid state battery production, although a decision on whether to pursue this line of business will not be taken until after 2020. (Reporting by Edward Taylor Additional reporting by Arno Schuetze Editing by Kirsten Donovan)

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