Car parts

Future of ZF's CEO uncertain after failed bid

Vorstandsvorsitzender der ZF Friedrichshafen AG
ZF might lose its driver, CEO Stefan Sommer. Source: picture alliance

Two attempts to buy New York-listed car-parts maker Wabco and a blunt interview that upset his shareholders will likely result in the departure of ZF Friedrichshafen’s boss, Stefan Sommer. It would mean a big boardroom shake-out at the top of the world’s fifth-largest car parts maker: Supervisory board chairman Giorgio Behr had already resigned with immediate effect on Tuesday evening.

At the next supervisory board meeting, due on December 12, replacements for both men could be top of the agenda, Handelsblatt learned from employees and labor representatives. Industry sources said the company’s majority-owner, the town of Friedrichshafen, has encouraged Mr. Sommer to resign. “There is massive pressure,” said a source close to the company. But so far Mr. Sommer has held out. With more than four years left on his contract, it would financially beneficial for him to be fired, rather than resign. But sources close to the CEO say his actions are for the good of the company, not his own financial position.

Mr. Sommer and Mr. Behr, both credited for buying US automated driving specialist TRW in 2015 for $12 billion, have fallen out of favor with its owner, the Zeppelin Foundation. Friedrichshafen, where ZF has its headquarters, controls the foundation and its mayor, Andreas Brand, has a seat on ZF’s supervisory board. The foundation and Friedrichshafen’s mayor Andreas Brand, have a different view of strategy and the pace of new acquisitions. They prefer to reduce ZF’s debt pile, which stood at €13 billion ($15.5 billion) at the end of June, including outstanding bills, before embarking on new takeovers.

ZF originally was an abbreviation for Zahnradfabrik, or Gear Factory, but the rise of electric cars could make ZF’s core competency – gears – obsolete.

Earlier this month, 69-year old Mr. Behr told Handelsblatt ZF was ready for another big takeover, but when he resigned on Tuesday, he said he did not want to hinder a rejuvenation of ZF’s board nor block “other possible changes.” Mr. Brand told Handelsblatt ZF was “prepared for this situation” and would choose a replacement for Mr. Behr on December 12.

The mayor, re-elected in January for another seven-year term, and labor representatives rejected in spring and September Mr. Sommer’s plan to buy Wabco, sources told Handelsblatt. The Belgian-American rival, which would have cost around €6 billion, is a maker of truck brakes, an expertise ZF lacks. The German company, which makes transmissions, steering gears and cruise control systems, last year failed to buy Swedish truck brake maker Haldex for 5.3 billion Swedish crowns ($634 million) after domestic brake maker Knorr-Bremse offered a higher price. Semi-trailers are expected to spearhead the industry’s efforts to make vehicles completely self-driving, which is why Mr. Sommer was keen to buy Haldex or Wabco.

The chief executive, a 54-year old former Continental manager, had also upset his owners in June, when he said in an interview with regional paper Schwäbische Zeitung that the 102-year company needed the freedom to act without shareholder interference in operations as the industry faced fundamental changes. ZF originally was an abbreviation for Zahnradfabrik, or Gear Factory, but the rise of electric cars could make ZF’s core competency – gears – obsolete, Mr. Sommer warned. His message was seen as a public battle with Mr. Brand and a breach of confidence between the two men.

01 p20 ZF A big car-parts supplier-01

With the non-executive chairman’s resignation on Tuesday and Mr. Sommer’s possible departure, the mayor, Mr. Brand, may be taking a risk. The CEO has been popular with the company’s management. With TRW’s purchase, ZF became one of the world’s heavy-hitters in the supply of automotive components, landing in the same league as Bosch and Continental, the sector’s number one and two.

In commercial terms, Mr. Brand’s aggressive tactics only make sense if he has another card to play. Over the years, persistent speculation has linked ZF to a possible merger with Knorr-Bremse, the company which blocked ZF’s takeover of Haldex. Knorr-Bremse’s 76-year-old owner Heinz Hermann Thiele is looking for a secure future of his company, after his son refused to lead the family business. Mr. Thiele was looking at different options, including floating Knorr-Bremse on the stock exchange, he told Handelsblatt in September.

Mr. Brand has reportedly been cultivating contacts with Knorr-Bremse. If a tie-up of ZF and Knorr-Bremse would be a consideration, Mr. Sommer would hinder merger talks following the fight over Haldex. The dealmaker himself would have to step aside to enable a transaction.

Streit um Zeppelin-Stiftung
Andreas Brand, mayor of 61,000 residents in Friedrichshafen on the shore of Lake Constance near the Swiss border, and, effectively, presiding over the world's fifth-largest car-parts maker.

Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent. To contact the author: buchenau@handelsblatt.com

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