ZF Friedrichshafen

Cruise control on buy?

ZF lässt Nutzfahrzeuge sehen, denken und handeln
CEO Stefan Sommer knows how to make a deal. Source: obs / ZF Friedrichshafen AG

Car parts supplier ZF Friedrichshafen made a quantum leap when it bought US rival TRW in 2015 for $12 billion, propelling it to the industry’s top three. Its chairman, Giorgio Behr, told Handelsblatt the foundation-owned company might pull off another big deal.

“We are now in a position to make acquisitions, and we may again go for something on a large scale,” said Mr. Behr, who rarely gives interviews. ZF has reduced its debt pile quicker than expected, possesses the necessary financial resources and has the capacity to integrate acquisitions into ZF’s operations, the non-executive chairman said. He refused to give details of which companies ZF was eying, but he did say: “We are strong in the truck parts business, but have not quite reached the size we’d like to have.”

New York-listed Wabco, a major supplier of truck parts, said in July it had received an acquisition offer, but a deal fell through after the buyer’s board did not approve it. Wabco, worth $7.8 billion, did not disclose the bidder, but the Wall Street Journal, citing sources, reported at the time it was ZF.

“Organic growth will not be enough for a company that wants to stay number one in a rapidly changing world”

Giorgio Behr, non-executive chairman, ZF Friedrichshafen

Mr. Behr, who announced he would resign next year, declined to comment on Wabco specifically, saying matters such as strategy and takeovers should not be discussed in public. ZF’s interest in the commercial vehicle parts, however, has been clear since it tried to buy Swedish truck-brake maker Haldex last year for 5.3 billion Swedish crowns ($633 million). Haldex’s shareholders rejected the offer.

Mr. Behr, a 69-year old Swiss millionaire, business man and former professor, said the Friedrichshafen-based company was keeping its options open. Some within the company felt that ZF, which makes everything from transmissions to airbags to cruise controls, should continue to pay down debt in order to clear it within two years. “But on the other hand, organic growth will not be enough for a company that wants to stay number one in a rapidly changing world,” Mr. Behr said, adding that a large acquisition made more sense than smaller deals. “Our thinking with TRW was: Better to make one big purchase than lots of little steps. That was the right way, and it will remain so for the next acquisition, which does not necessarily have to be as large as TRW,” he said.

With TRW’s purchase, ZF became one of the world’s heavy-hitters in the supply of automotive components, turning over €35.2 billion last year. It landed in the same league as Bosch and Continental, the sector’s number one and two. The US takeover gave ZF access to TRW’s expertise in self-driving technology, in which it is now regarded as a global leader. In March, ZF took a minority stake in Astyx, a radar maker, and last year acquired 40 percent of laser maker Ibeo to further improve its autonomous driving products.

13 p32 ZF Friedrichshafen-01

ZF, an abbreviation which originally stood for Zahnradfabrik Friedrichshafen, or Gear Factory Friedrichshafen, is an offspring of Zeppelin, the airship maker. It was founded in 1915, making gears and transmissions for the flying balloon’s engines and propellers, but soon started supplying carmakers as well. ZF has an unusual ownership structure – in effect, it is a global industrial company in local municipal ownership. Thanks to historical quirks, the company is 93.8 percent owned by the Zeppelin Foundation, which is in turn controlled by Friedrichshafen, the picturesque lakeside town where ZF has its headquarters.

ZF pays out dividends to the foundation, which spends the money on public projects in Friedrichshafen. In recent years, ZF’s pay-outs increased from €30 million to €50 million, but the city council plans to see the figure go considerably higher to 18 percent of net profits. The town would then rake in €160 million, leaving less room to fund takeovers. Mr. Behr advised ZF’s owners to also consider the firm’s capital base, level of indebtedness, tax and modes of financing. Simply raising the dividend without considering other factors would not work, he said.

Whether Mr. Behr himself will see ZF buy another firm remains to be seen. He confirmed rumors that he would step down as chairman of ZF’s supervisory board: “Yes, I can confirm that. I will have done two five-year terms next year, and I’ll also be turning 70. I’m not thinking of another five years.”

The ZF chairman said most of the credit for the company’s success must go to chief executive Stefan Sommer, whose term runs until 2021. He described Mr. Sommer as a “genius of car industry strategy,” saying the CEO could one day go on to lead a major automaker – or pursue the next takeover.

giogio behr
Giorgio Behr, one of Switzerland's richest men, with assets topping 400 million Swiss francs ($402 million), will not really retire next year: He controls Swiss group BBC, which makes electric cables, packaging materials and sensors. He is also president of a team handball club and supports projects to keep old trains running. Source: Nik Hunger for Handelsblatt

Grischa Brower-Rabinowitsch leads Handelsblatt’s coverage of companies and markets. Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent. Brian Hanrahan and Gilbert Kreijger adapted this article in English for Handelsblatt Global. To contact the authors: brower@handelsblatt.com, buchenau@handelsblatt.com and kreijger@handelsblatt.com

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