Schaeffler's (SCFLF) Bold Bid for Vitesco to Drive E-Mobility
The rapidly transforming global automotive landscape, driven by the shift toward electric vehicles (EVs), is witnessing another significant consolidation move. Germany-based motion technology giant Schaeffler SCFLF has made a bid of 3.64 billion euro to acquire Vitesco Technologies, a significant player in the EV components space. This proposed merger aims to create a behemoth in e-mobility solutions and capitalize on the surging global EV demand.
Schaeffler, which is spearheading this consolidation, is no stranger to bold business moves. The company’s attempt to take over Continental in 2008, just before the global financial crisis, is a testament to its ambitious vision. This present endeavor to acquire Vitesco, spun off from Continental in 2021, seems to be a step toward reshaping its industrial empire in line with the evolving automotive landscape.
A Strategic Move for Dominance
Vitesco, headquartered in Regensburg, has established itself as a pivotal force in the electric vehicle component market. With revenues of 9.07 billion euros in 2022 and a workforce of roughly 38,000 employees across 50 global locations, Vitesco’s influence in the EV space is undeniable. While it continues its legacy business in internal combustion engine (ICE) parts, its forward momentum is clearly in the electric realm.
Schaeffler's decision to merge with Vitesco is rooted in strategic alignment. Both firms possess highly complementary technology portfolios, especially in the electrification domain. The combined company envisions offering top-tier solutions in e-mobility, leveraging burgeoning growth opportunities in the segment. Moreover, they aim to optimize profitability not just in electrification but also in conventional powertrain technologies and automotive aftermarket services.
A Four-Division Strategy for Comprehensive Market Coverage
Upon successful merger, Schaeffler plans to restructure into four distinct divisions, each aiming for leadership in its respective market. First would be the E-Mobility Division, which would merge assets and capabilities from both firms, aiming to become a market leader with an order book of around 40 billion euros. Then is the Powertrain & Chassis Division, which will unify mature businesses from both partners, focusing on conventional powertrains and chassis. Vehicle Lifetime Solutions Division will oversee aftermarket activities, amalgamating Vitesco’s and Schaeffler’s platforms, while the Bearings & Industrial Solutions Division will encompass Schaeffler's current Industrial Division and its Automotive Bearings business.
Klaus Rosenfeld, CEO of Schaeffler, emphasized the transformative nature of this merger. He envisions the new entity as a leading Motion Technology Company, benefiting customers, employees, shareholders and business partners alike.
Significant Synergies and Financial Prospects
The merger's potential goes beyond technical and market prowess. Financially, the Schaeffler-Vitesco combination forecasts a significant EBIT impact of 600 million euros annually by 2029. Despite one-off integration costs estimated at 665 million euros, the merged company projects pro-forma sales of around 25 billion euros annually.
Furthermore, with 44 R&D centers and more than 100 production sites globally, the combined workforce will exceed 120,000. An interesting cultural and strategic alignment is apparent, as both companies are innovation-driven, have a robust focus on sustainability, are headquartered in Bavaria, and have IHO Holding as a joint shareholder.
As the EV market continues its upward trajectory, strategic mergers like this set the tone for the industry's future. The Schaeffler-Vitesco alliance, with its vast technical and financial resources, is poised to be at the forefront of this electric revolution.
Zacks Rank & Key Picks
SCFLF currently carries a Zacks Rank #3 (Hold).
Top-ranked players in the same industry include Magna International MGA and Adient plc. ADNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MGA’s 2023 sales and EPS implies year-over-year growth of 13% and 31%, respectively. The earnings estimate for 2023 has been revised upward by 8 cents in the past 60 days. The consensus mark for 2024 sales and EPS implies year-over-year growth of 5.7% and 24.2%, respectively. Magna has a VGM Score of A.
The Zacks Consensus Estimate for ADNT’s fiscal 2023 sales and EPS implies year-over-year growth of 9% and 1,791%, respectively. The earnings estimate for the current fiscal has been revised upward by 15 cents in the past 60 days. The consensus mark for fiscal 2024 sales and EPS implies year-over-year growth of 3.1% and 77.3%. respectively. Adient has a VGM Score of A.
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