Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Investor and Analyst Call of Schaeffler AG. Please note that this call is for institutional investors and financial analysts only. Throughout today's recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question-and-answer session.
If you would like to ask a question, you will have to dial in via phone. The registration links for telephone dial-in can be found on the end of the press release. To ask questions, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. The presentation will be concluded under the legal disclaimer. I would now like to turn the conference over to Schaeffler Group CEO, Claus Rosenfeld, and Group CFO, Claus Bauer. Please go ahead, gentlemen.
Thank you very much, operator. Ladies and gentlemen, welcome to our investor and analyst call today. As you all know, we have launched this morning an announcement for a public tender offer to the shareholders of Vitesco, that we would now like to describe in more detail to you. I'm here together with my CFO, and we will present and then leave, hopefully, enough time for your questions.
I hope you can all see the presentation that we pre-distributed, and I will immediately jump into this. You have here the agenda. I will start with the overview and then the strategic rationale, and Claus is going to take the financial considerations. I then jump in for the summary. Here's the whole story in six highlights.
The public tender offer, as we described, is not just a public tender offer, it is the first step of an overall three-step transaction that I will describe in a minute. The offer is EUR 91 per share, with a non-tender agreement of the IHO Holding and a 20% premium on the three months VWAP.
The first step is followed by two more steps, the second one being the intended conversion of the non-voting shares of Schaeffler AG into voting common shares. With that step, we are, on the one hand, reacting to the constant request. We would like to have voting common stock, also with regard to ESG and corporate governance concerns. Second, we are paving the way for the third step, a merger of Vitesco Technologies into Schaeffler AG.
The three-step transaction shall then lead to what we call the leading motion technology company, a company with pro forma combined revenues of EUR 25 billion and four focused pure-play divisions that I will explain in this deck. The new company, let's call it Schaeffler New, shall then have a much more simplified shareholding structure.
We envisage that after the transaction, 30% of the shares will be free float and the IHO Holding will hold approximately 70% of the shares. The shares should have higher liquidity than what we have today. They have full voting rights. They should be included in MDAX and MSCI Europe, and will provide, given the four focused pure-play divisional structure, also more transparency. Many of you have asked us for quite some time: "How profitable is your e-mobility business?
When will we see breakeven?" And with that new structure, I think you will get that transparency. It's not only the simplified shareholding structure that drives us, but the potential to create significant value. The value should come first and foremost from revenue and cost synergies. We also count on a re-rating of the overall portfolio.
With the four pure-play divisions, that should be much easier compared to relevant peers. And for sure, the E-Mobility is at the center of this. Combining our strengths with Vitesco's strengths has been questioned and asked for since many, many quarters, and we're now doing that step, hopefully as part of a well-organized and thought-through transaction. And last but not least, such a move only works if the two companies can work and execute together.
We strongly believe that this is a move where two companies merge that have strong cultural fit. Just think about the technology, innovation, mindset of both teams. We clearly envisage also after our first conversation with the Vitesco CEO, a friendly transaction, welcoming our partners and long-standing colleagues at Vitesco into this new company.
You have that described here in a little bit more detail that I leave for you to read. I think we have more or less already said all the crucial points. Let me simply stress one of them. There is clearly a commitment from our side, and Klaus will explain that in more detail, to continue to run the new company with a full focus on free cash flow...
That has always been our mantra when we built Schaeffler since the IPO in 2015. We'll also continue with the same disciplined capital allocation approach that, you know, is centered around a reinvestment rate that we introduced for the various businesses. We also commit already here to a 30%-50% dividend payout ratio for the new company. Before I go into more detail, let me stress at this point one more point, and that is then the financial impact that Klaus will describe.
This transaction, as you would expect, is not immediately accretive because a high-margin business buys a or acquires a rather low-margin business, but it is immediately positive in terms of leverage, and Klaus will explain that in more detail. Now, let me come to the second element, the key transaction steps.
We have laid out here again how this is designed to be executed. First, the offer. Today, an announcement. We expect the offer period to start on the 15th of November, last until the 15th of December. The close of offer would then technically close in January 2024.
You saw the price, EUR 91 per share, and you also heard that this offer has no acceptance threshold and is equipped with customary closing conditions. Critical to the offer, clearly, is the non-tender commitment that we have signed this morning with IHO Holding, that owns already 49.9% of the shares.
For those that are not so familiar with German corporate law, the second step, the conversion of the non-voting common shares into voting common, requires a resolution of the non-voting common shareholders and an extraordinary general meeting of those shareholders. The approval requires 75% of the votes, and we believe that this is highly likely because there are only benefits for the shareholders in that transaction.
In particular, when you think about the simplified shareholding structure and the envisaged liquidity and the commitment to increased free float. Then the merger, as a final step, needs a decision by the annual general meetings of Vitesco and Schaeffler. We would use and try to use the existing normal AGMs in April and May.
This merger does not envisage any type of DPLT or any squeeze-out. It simply requires 75% of the votes and of the votes of those that are present. Typically, not 100% of the shareholders are present, but a lower number, so the threshold to get the merger executed is lower than simply 75%. Interestingly, the merger does also not require antitrust clearance in the important jurisdictions like the EU, China, or the US, and all other bigger markets.
In some smaller jurisdictions, we need an approval, but we think that that is clearly something that will be achieved within the given time frame. Last point here, you all know this, in German reorganization law, final merger exchange ratios are determined based on a statutory valuation process.
That means we cannot give you the exchange ratio now. You can use as a proxy the existing market prices, but clearly, the final merger exchange ratio will be done on a separate valuation of the two companies. Let me also say one thing up front here that is important for you to understand. All the numbers you see later on are done for Vitesco on an outside-in basis.
All of you know that I'm a member of the Supervisory Board of Vitesco, and we had to proceed here clearly with some understanding that everything we do has to be done outside and without usage of any knowledge or information that we have from our Vitesco Supervisory Board positions.
So whatever you see in terms of calculations is outside in and has clearly followed the logic that we can't create a conflict of interest. Let me go to the shareholding structure here. I think you can all understand that picture. It's, from left to right, the intention to simplify this. As I said it, we want to create a share that has enough liquidity, that is attractive enough, that's listed in the right indices, and that helps you also to invest.
With the 30%-70% percentages that I mentioned, we should provide something that is much more interesting. Now, let me go to the second part, the strategic rationale. Ladies and gentlemen, and this picture needs certainly a little bit of explanation. This is how we want to set up the company.
We call the group a motion technology company, because it has more and broader technology than just mobility. We have decided to set it up in four focused divisions that we call pure play divisions. We know that the capital market thinks, maybe differently about what a pure play is, but we want to demonstrate and also indicate to you that we are clearly committed to put these four divisions together in a way that you can compare their financials with peers in the best possible way.
Let me explain the four divisions. The first one is E-Mobility. We would put together our E-Mobility activities with the electrification division of Vitesco. All of you know that Vitesco has, since the beginning of the year, decided to present its numbers in two divisions, electrification and powertrain.
This is a combination that many of you have asked for, for quite some time, and I think I don't need to explain the rationale behind it. For us, this is a move to clearly establish the leading company in E-Mobility with best-in-class technologies and a very broad and strong product portfolio. It all results from the fact that the companies fit very well when it comes to complementary strengths and capabilities. The next division is then Powertrain and Chassis.
That would include the conventional powertrain business of Schaeffler and the conventional powertrain business of Vitesco. You all know that these businesses that we call mature are exposed to declining market growth. We will continue to manage them for value generation. We will harvest what we have, manage them for margin, and certainly for free cash flow.
There has been a long debate over quarters whether it makes sense to have this under one roof or separated. We strongly believe as long as you manage these businesses in a straightforward and focused manner, it makes a lot of sense to have them under one roof, because the powertrain, conventional powertrain business will throw off the cash flow that you need to finance the growth in E-Mobility. That's what we are saying here, with one little addition.
The powertrain division is called Powertrain and Chassis, and Chassis is the Schaeffler business. That's a new growth business. We have invested quite a bit into this, and we will continue to invest and grow that business. So powertrain is not just a business that will come down. There is an element of growth in there as well.
Then to the third division, we call that third division, Vehicle Lifetime Solutions. That should indicate to you that it's not simply a continuation of the classical aftermarket business, where a supplier would sell spare parts that are produced in the normal business.
We want to demonstrate here to you that we will form something new together with the aftermarket business of Vitesco, that today is part of the powertrain division. We want to create a growth business that has, you know, low capital intensity, that is basically an asset-light business, but high margin.
Remember, the margins that we make in that business will manage that business for profitable growth and clearly for free cash flow, and have the ambition to develop a global integrated platform provider that addresses not only a spare part, but customer needs along the whole vehicle life cycle, and that would also include remanufacturing type of businesses, a new approach to digitalization, a new approach to sustainability, something that is clearly very promising.
And then last but not least, Bearings and Industrial Solutions. You heard that as well. Here we are combining the industrial division of Schaeffler. That is predominantly bearings, but certain products on top of this, think about actuation, think about industrial automation, think about the whole service area that we have, the growing and emerging hydrogen business.
We'll combine that with our automotive bearing business, the Schaeffler automotive bearing business, that today is part, as you know, of the automotive technology division that my colleague, Matthias Zink, runs. I think that gives you the outline of this new company. If you look for the indicative sales development, you see what you would expect.
E-Mobility on a pro forma basis, combined in 2022, EUR 2.4 billion, expected to grow significantly. I think a 4x growth is possible until 2030, and that would give you then on, in our pro forma outside-in calculation, a 30%-31% stake of E-Mobility in the new company.
At the same time, Powertrain & Chassis, EUR 13 billion pro forma combined, 53% of the total at the moment, clearly going down into the 28-30% range. In future, if all of that happens, as we think about this, you have basically a strong E-Mobility position and a strong Powertrain & Chassis business, both in equal size in 2030.
Vehicle Lifetime Solutions, a 10% share, more or less stable, growing with the company, top line and also with the market growth. Bearings & Industrial Solutions, another 30%, clearly a potential to grow here from the EUR 7 billion basis. You see that this is not just a niche business for us going forward. It will be an integral part of this new entity.
You will have the right multiples from peers like SKF or Timken or the Japanese ones to value that business properly. Let me go to the next one, and I think with that, I run in open doors. E-Mobility, it's obvious that the two companies have exactly the complementary strengths and capabilities for future growth. You see it on the left-hand side.
You see that there is certainly significant market growth potential with a significant addressable market for us, in particular in that combination. We have indicatively calculated a combined order book of somewhere around EUR 40 billion and see significant growth possible. Where exactly the break-even will lie remains to be seen.
As I said before, this is outside in, and we have not done a due diligence exercise or any work with Vitesco colleagues, how that combined entity will look like. This is a further slide on E-Mobility. It's built on company information and an expert assessment. And what it just simply should tell you, the strengths are complementary.
If you combine our strong Schaeffler mechanical capabilities with the systems understanding, with the superior position that our colleagues and partners at Vitesco have in power electronics and many more, then you will certainly form something that is best of both worlds, complementary technological strengths, across all dimensions. That is clearly a very strong value proposition. Then I think on the next page, also for illustration purposes, I think I explained the logic, the mature part and the growth part.
Chassis with significant growth potential going forward. Also here, the list of peers that we could compare ourselves against, a solid market share, if not market share gains. Many of our customers come and say, "Please don't leave us alone on ICE. We need companies like yourselves that will continue and support us also on the way downwards." I can assure you, we will manage this for a stable margin, high cash generation, and a downward trend.
LifeTech, vehicle lifetime solutions, I also explained that. Also here, for illustration purposes, a little bit more. You all know our proposition here. There is an aging car park that will require more support, more repair solutions, more digital repair solutions, and we see that there is significant growth for us possible with even margin expansion and strong free cash flow.
Don't forget, our business has demonstrated in the first half that 15% margin is possible, and we think with that combination here, also, we see combination of synergies from Schaeffler and Vitesco together. There's not only best practice sharing, but a significant opportunity to form a top company in that space. Then, bearings and industrial solutions.
You know our approach to the four market clusters: transportation, mobility, machinery and materials, industrial automation, and renewables. You also see here a pro forma split. It will be a well-diversified portfolio. Clearly, the transportation mobility part will grow through the inclusion of the automotive bearings, in particular for cars and trucks.
There are some transformational synergies possible here, simply from combining the two activities when it comes to bearings, sizable benefits in terms of economies of scale and also a strengthening of the technology and innovation power we have.
But let me also say, this is not neglecting the fact that we have businesses outside the bearing business, linear motion, for example, service solutions, a business with over proportional growth, and also the emerging hydrogen activities, where also Vitesco brings further technologies to the table. It's interesting to build bearings and industrial solutions into a global market leader. Before I hand over to Klaus, one word on the cultural fit.
I believe in making all of this happen, it's not only the strategic logic or the numbers that should drive this, it is, in fact, the cultural fit, the shared values, and the joint esteem to make this an excellent company. Let me quickly explain this. There are two management teams coming together that know each other.
Both companies are headquartered in Bavaria, what is a good thing, and we have an existing culture that we also observe from our supervisory board work of collaboration, respect, and teamwork. Both companies have a strong engineering and innovation-driven culture that is customer-centric and agile across regions. I really like the fact that here, engineering teams together, come together, that will put even more focus on future orientation and innovation.
Both companies, also something that is very important to us, our colleagues and partners at Vitesco have done a superb job here. Both companies have a strong commitment to sustainability, sustainability goals, and a clear, sort of strategy, how to decarbonize the companies. That goes hand in hand with talent attraction.
You all know how important the war for talent has become, and with this preeminent player, we are certain that we can even attract better talent, and we clearly stand up to our corporate and social responsibility values. For sure, the Schaeffler family has always allowed us to think long term. That is, in this environment, with all these challenges, a big benefit.
We have always demonstrated that we can handle even difficult situations constructively with our employees and works council, and that all is built on the strong values of a family-owned company. So we believe, and with that, I hand over to, Klaus, that this is a great opportunity, in a well-thought-through, very well-to-execute transaction structure to create long-term value for customers, employees, shareholders, and all our business partners. Claus, over to you.
Thank you, Klaus. Ladies and gentlemen, let's look a little bit deeper in some of the financial implications of this proposed transaction. Klaus already touched on a few points, but let's go into a little bit more detail. On this first slide, you see how, if there was a combined entity last year, how it would have looked like in 2022. You see the sales of these two standalone companies, and then on the right side, the pro forma combined look. Klaus already touched, I think, on the starting point here.
You see the four divisions on the right side that we envision to manage this combined operation under with a relatively small stake in E-Mobility. Klaus, I think, said how we would expect that to grow significantly, and then relatively strong powertrain and chassis division that would provide for the cash and financial basis and strength to be successful in our transformation.
On the next section, you see then the sales divided by regions. What's interesting here, and Klaus alluded already a little bit to that, is that we absolutely plan to drive and manage our operation in a second dimension of our metrics, also by region.
It will be the four regions that the Schaeffler Group is organized by today. If you look carefully at the percentages, then you see one interesting point. Our relative weight in Americas would increase slightly, and our relative weight in Greater China would decrease slightly. So also from a geopolitical mix, I think a good story here. The other statistical numbers just for your information: production plans would be combined over 100 R&D sites, 44, and over 120,000 employees.
If you look at the synergies, I think you all read in the press release that in our outside-in assessment, and I repeat it and reiterate it, it's all outside in, and we derived every financial number just based on publicly available information.
But it's our view and strong conviction that there's a significant synergy potential, EUR 600 million on an annual basis. You see on the right side, the breakdown, EUR 100 million in revenue synergies, and then EUR 500 million in cost synergies. You see then on the left side, on the bottom, also the key cost levers that drive the cost synergies.
Of course, as you would expect, the economies of scale and procurement being the main driver, making up about 50% of what we see. The other three drivers are really about efficiency and best practice sharing between the two companies, and as Klaus said, with a highly complementary setup and also knowledge base. It's a transaction that is focusing clearly on the growth potential, and therefore, if you read about these efficiencies, it's really about combining existing resources to then support and facilitate the significant growth story and growth potential that we see.
You see also, coming back to the right side, then the one-time integration cost that we see necessary to achieve these synergies. Most of that, as you can imagine, is system and process integration. And then there's also a smaller portion, really transaction-based, to really execute what Klaus described in the three step approach. In the chart, then you see how we see the synergies and also the one of cost phasing in.
That's now a free cash flow view, because we have still to decide when we know better and have a little bit of an inside view how the EBIT and accrual situation will be, so the accounting itself. But I think the chart depicts in a good way how the cash effect would phase in. You see, 2026, we would already estimate to reach 50% of the synergy levels, and then 2029, going forward, we clearly see the 100% level achieved.
Klaus already touched a little bit on that, and that's the attempt to illustrate it, how that transaction would play out from a leverage standpoint. Let me first touch on earnings per share. It's clearly EBIT accretive, what we are doing here, already in the second year after the merger. Please remember, the merger is expected to happen towards the end of 2024, and I will come to that special year in a moment. In 2026, it will be accretive and from there, also, accelerating. The earnings per share is a little bit more difficult because it depends also how many shares there will be.
Klaus said the merger exchange ratio is an important variable at that point. I want to also reiterate what Klaus said. It will be based on rules and regulations. In that case, it will be an independent evaluator that is doing this assessment. One indication, or maybe one indication—I don't even want to say good indication—is the share price relationship and ratio before the impact of our announcement this morning. You can imagine discounted cash flow and other sophisticated evaluation methods will also play a significant role in that.
But anyways, long story short, we in our simulation and scenarios, we also think that this transaction will also be accretive as it relates to an earnings per share KPI from latest 2026 on. Now, let's come to the leverage ratio. Klaus said it already, and that might really surprise you. This transaction will be leverage ratio positive from the very beginning. And the very beginning, I mean, after the transaction is fully completed, that means right after the merger. You see a little bit... And as I said, we tried it to illustratively depict it here.
We see, in 2024, there's a slight increase. We think it's significantly below 2.0, but it's a little bit above our current level of 1.5 times. The reason is that before the merger, Schaeffler AG has to include the shareholding and consolidate it at an at equity basis. That means the debt is on the balance sheet, but we don't get the benefit of the EBITDA contribution of Vitesco. Therefore, the formula for the leverage ratio is a little bit out of balance until we have completed the merger. You see then, with the merger completed, in 2025, going forward, it's highly positive.
We will be significantly below our current leverage ratio, which then is a testimony to our financial strength and will also provide financial flexibility going forward. What you will get with the transaction is our strict financial performance management. We are committed to maintain everything that you are used to get from us. Klaus said it already, that we will have a strong free cash flow focus, efficient working capital, and everything that is in line. We will use our mature businesses with an harvest logic to provide the very solid cash flow that is the basis for our financial strength.
That will be supported by disciplined capital allocation. You know it from past calls that our logic is based on a build, grow, harvest, exit portfolio that we will apply in a disciplined way to drive focused investments in the strategic growth areas. And of course also continuing our strengthening of our digitalization and sustainability efforts.
It comes without saying that we would also thrive the operational excellence as we have, I think, proved very consistently in the past. And therefore start from the production floor, optimize production costs, leveraging economies of scale as a major contributor to the synergies that we see, and the harmonization of supply chains.
All together, it is our promise here that our dividend policy will be unchanged. We will maintain and continue our 30%-50% payout ratio that you are used from us. And with that, back to you, Klaus, to summarize.
Thank you, Claus. Let's go to page 19. Here you see again, the major aspects of the public tender offer. The EUR 91 per share is from our point of view, an attractive all-cash offer, 20% premium on the three months VWAP, and if you go back to the first price at spin-off, a 52% premium. Let me outline here again, this is an offer in together with a subsequent merger.
The Vitesco shareholders have basically two options. They can tender their existing shares and realize the attractive premium, more or less at an all-time high share price, or alternatively, stay invested in the Vitesco share, become shareholder in Schaeffler New through the merger.
That is highly likely, and supported by significant execution probability, and then realize long-term synergy, and value creation potential, through that new structure with a much better shareholding proposition. Let me close on page 20 with once again, the key highlights. I mentioned it, an attractive offer, an overall three-step transaction to establish the motion technology company, four focused pure-play divisions, simplified shareholding structure, hopefully leaner and more attractive.
A significant value creation potential, with high level of revenue and cost synergies, and a strong cultural fit, with a friendly business combination envisaged. Now, let me go to the last page before we open up for questions. This is the next steps. This came as a surprise this morning.
We announced it today, and we will be available during the next days for conversations with all of you, in what we call the Schaeffler Top Management Virtual Roadshow. Schaeffler will release earnings for Q3 on November seventh. Vitesco will release on November fourteenth, and on November fifteenth, we'll start the offer period, and certainly then go on roadshow again, and speak to all of you that are interested on the proposal here.
The offer period should then end on the fifteenth of December. For sure, our investment relations department, led by Renata Casaro, and also the banks that have helped us on this transaction, are all available to engage with us. We thank you for your attention. It's a fantastic day for Schaeffler.
We are realizing something that we have worked on for long, and we think it's a fantastic opportunity also for shareholders, to participate in the value creation. Thank you very much, and now to your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. We kindly ask you to limit yourself to only one question at a time in order to enable participation of the other attendees. You can then book yourself for a follow-up question. Anyone with a question may press star and one on a touchtone telephone.
If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone with a question may press star and one at this time. Our first question comes from Akshat Kacker from JP Morgan. Please go ahead, sir.
Thank you. Akshat from JP Morgan. I'll limit myself to one question. So the question is on the EUR 500 million cost synergies. Could you just help us split this up into purchasing, supply chain efficiencies, and R&D and SGA?
Yeah, if we maybe... I don't know whether we want to go to page 16, but anyways, I think we explained the cost drivers there, and that shouldn't be a surprise. But what you are saying or what your question is really about is how big is the first bucket here? I think it's... I think I said it, it's around 50%, and the other buckets are then around the same weight.
Yep. And yep, I would leave it at that. A little bit more in the logistical supply chain efficiencies than in the other two. But R&D, SG&A, and best practice sharing is about the same, and supply chain efficiencies may be a little bit more of the remaining 50%, but 50% is in the procurement.
Sorry, there was some background noise. I couldn't complete my question. The other part of the question was: Have you included any potential CapEx synergies from avoiding double spend? And also, do the integration costs of EUR 665 million, do they also include the costs to implement these synergy benefits, please? Thank you.
Well, I think we can say maybe, I, I go first before Claus, continues. These synergies have been calculated, due to the reasons that I just mentioned, also fully outside in. We've not been able to speak to our Vitesco partners and colleagues before the announcement, and, we have therefore also not been able to validate these synergies.
We have done this with external support and benchmarking this against models. First of all, Akshat, again, on the, on the cost synergies, there's significant synergy value by just putting the procurement together. In particular, if you think about power electronics that we source and that, Vitesco has, there is significant, potential here if you think about operational excellence also for the plants.
And therefore, I do believe, we believe, that these cost synergies are rather on the conservative side. But please give us a moment to go further and put more details behind this. Our model, our outside-in work that we have done, indicates that this is a very solid and achievable level that we dare to announce at this level. In terms of CapEx synergies, that's a good point.
We have not looked at that at the moment. That would require a diligent review of the order books and see what we can use together. I would not exclude that that is a possibility, but it's not part of our pro forma business plan calculations. That is clearly would be on top and would help to free up some free cash flow.
Yeah, I think one more, one more topic that is not included in the outside-in view is obviously how can we use production capacities in either company to replace outside sourcing? So, make versus buy that is not included yet in that calculation and is also on top, because obviously, for obvious reasons, you need a clear inside view and understanding what the production capacities and capabilities are.
Okay.
Very clear. Thank you so much.
You're welcome.
The next question comes from Michael Rapp from Kepler Cheuvreux. Please, go ahead.
Hi, gentlemen, Michael Rapp, Kepler Cheuvreux. You said earlier today that you wouldn't need an equity issue to finance the deal. But when we look at the wording in your press release, we find that there is obviously also an acquisition bridge loan in there, which at some stage is gonna take refinancing.
So my question is, can you also rule out that in the midterm there is gonna be an equity issue to refinance this acquisition bridge loan part? And then also one question in conjunction with that, if I may: When it comes to converting Vitesco shares into Schaeffler ones, in the case of any of those shares having not been tendered in stage one, is the currently existing authorized capital eligible for that? Thank you.
Let me first comment on the first one. We don't expect, we don't plan, and we don't think that an equity issue is necessary. And Klaus explained it, and I do some exemplary numbers here. Vitesco has 40 million shares out. 50% or 49.9% are held by IHO Holding. IHO Holding does not tender because they have entered into a non-tender agreement. 20 million shares remain.
We have an offer out with a price of EUR 91. Even if we would get all the shares, what is clearly inconceivable, that would be EUR 1.8 billion. Now, if you now think through the three-step approach and assume that the merger would happen immediately, we get all the EBITDA of Vitesco. And let's assume that we don't...
Just for the sake of argument, we don't get all the shares, we get only half of the shares. That would give you debt of EUR 900 million and more or less an EBITDA of EUR 900 million. That in itself is then a leverage ratio of 1. If you add that to what we have, it is immediately leverage positive.
So why should we need an equity raise for this, for a company that has a proven track record of constantly achieving its free cash flow targets, that has gone through a period, Michael, where we have spent significant money on restructuring, with significant one-off restructuring payout? I think I can rightfully say an equity issue here is by far not expected. It is, from my point of view, not necessary. We can maintain, even without an equity issue, a balance sheet strength that allows us, if we want to, to continue even with certain inorganic growth opportunities.
Okay. Perhaps I wasn't quite clear in the phrasing of my question. If so, please forgive me, but I was not actually alluding to stage one. I was alluding to the midterm future, say, to that point in time in which you may have to refinance the acquisition bridge loan.
But the acquisition of the bridge loan can be easily done by take out financings through the bond market, and, that's what we plan. We will syndicate, the acquisition bridge, more or less immediately to the market. First, banks have already called and said: "Can we participate in this?" And, then when, it's clearer what the offer will result in, we will go out to the bond market and refinance the acquisition bridge, but not by equity, but by public debt, as we have done before.
Okay. And then for the second part of my question regarding potentially existing Vitesco shares after the completion of stage one and going into the merger.
Well, but,
Can that be done with the existing authorized capital, or is it restricted for specific purposes that would not include that one?
Well, my understanding is, again, I'm not a corporate lawyer, but through the merger, the shares of Vitesco will be exchanged for an exchange ratio that still needs to be determined into Schaeffler AG New shares. So that has nothing to do with the authorized capital. We will simply, through the resolutions that will be taken at the merger AGMs, free up the way to enable that exchange and that transaction. So from my point of view, but again, I'm not a corporate lawyer, we can go back and answer that question separately. There's no separate authorization needed for share capital.
All right. Thank you.
You're welcome.
The next question comes from Edoardo Spina from HSBC. Please, go ahead.
Good afternoon. Thanks for taking my question. I have one on the combination of the technologies, especially for E-Mobility, of course. Do you expect any one-off cost for restructuring the footprint or combine the R&D teams? I assume that is something that you would like to do. Secondly, on this topic, how can you combine these businesses without a domination agreement? Do you need that in order to execute this plan? Thank you.
Let me start with the last one, it's a specific form of this transaction structure that says you don't need a domination agreement here. Once again, we already own, through IHO, or let's be more precise, IHO owns 50%. When let's assume the offer is successful with 25% of the shares, that means after the offer, Schaeffler AG would own 25% of the shares.
Now, you would go into a merger, where in the annual general meeting, the only thing you need is 75% of the votes of the shareholders present, to agree that Vitesco is merged into Schaeffler AG. For that, you don't need a domination agreement, you don't have any threshold until where this offer expires or falls away. It's a very simple step, where you need this approval in the annual general meeting.
That's why what you just said is not relevant for this transaction at the moment. In terms of the transaction security to get this done, is a function of the fact that IHO Holding already holds 49.9%, and we would acquire a certain part now in the offer. In terms of the one-off cost and R&D, Klaus said there are cost synergies and certainly cost synergies from putting the R&D teams together and create efficiency.
How much that will be, again, this is early days, we can't tell you, but it's obvious that you can do something better together. I can't give you locations, I can't give you sizes. I can only say directionally, there is efficiency potential by doing things together.
How much of the EUR 665 million would relate to that type of combination will remain to be seen. In Germany, we can say the footprint has not a big overlap. We have plants here from Schaeffler, we have locations from Vitesco, and we do not see any bigger efforts necessary to reduce jobs or combine these activities. Still, it's early days. We need to go through all of this together with our partners at Vitesco and then see what's the best way.
And maybe-
Thank you very much.
Maybe I can add, and I mean, we-- This is based on the growth potential that we see in the combination. Many of the synergies in regard to efficiency, even if they are not necessarily complementary, will be then invested into the growth. You know, there's a war of talent, and I don't think that there's any intention to lose talent, and we rather invest the talent then into the future growth story.
Oh, okay. Thank you. Just to clarify, on the first point: so I understand it would be okay for you if Vitesco remained a independently listed company or stock, that would be fine with you. You would still execute the plan as you said, right?
But look, you need to understand it in the three steps. After the offer, when the offer closes and we get, let's say, to up to a participation of 25%, they would still be an independent company. But after the merger, Vitesco becomes an element of the Schaeffler AG new, and they will not remain as a separate independent company. They are merged into Schaeffler AG.
It would still be delisted, you say, you say?
Yes.
And if minority hold-
Maybe I go to-
... 25% of Vitesco-
Maybe go, if you-
On the market.
If you look at this page again, here, the shareholder structure. If you see... I hope you can see it on the screen. That's the existing one, and after the merger, Vitesco is merged into Schaeffler AG to the left, and it becomes part, with all its assets and liabilities and all its employees, of Schaeffler AG new. After merger, post-transaction, there is a Schaeffler AG new, but no more Vitesco as a separate company.
I understand. Okay. Okay. Okay. Thank you.
You're welcome.
The next question comes from Markus Schmitt, from ODDO BHF. Please go ahead.
Yeah, thanks for taking the question. Just one, of course. In terms of the ratings at the bridge, I think you discussed the acquisition with the rating agencies. Have they indicated to you what the acquisition could mean for the rating, and do you expect any imminent positive or negative changes there? And just a confirmation, if I understood that right, so Schaeffler would come to the bond market early 2024, when it's clear what cash amount needs to be termed out, and this understanding is correct.
Yeah, maybe I start with the second part. I don't think that at this point we would already commit to a detailed timing in that regard. We, of course, also have to carefully evaluate options and also market environment, so that all will play a role. We have a pretty normal bridge financing in place that gives us also flexibility from a timing standpoint. To your first question, we contacted the rating agencies also immediately after our ad hoc, and the first reaction is that it's understood, and we will proactively engage with the rating agencies over the next few days in discussing.
I think it's necessary, like for you, that all other stakeholders also understand the logic and the structure of this combination, and it needs to be understood what we tried to explain here with our leverage ratio development, and Klaus said it in his example, if we would now acquire just statistically to be at the midpoint, if we would acquire 25% of the free float of the outstanding shares, or 50% of the outstanding shares, so 25% of the total shares, that would be financing needs in the range of EUR 900 million.
And we don't see, based on also the calculation that Klaus already made with the incoming EBITDA, and then especially with the growth potential going forward, that is impacting our rating negatively. We are committed to our current rating. We are committed to our midterm target to be robustly in investment grade. But let's see how that develops over the next few days. But the dialogue and conversations are kicked off.
Okay. Then just one follow-up, please. Would you say in terms of the bridge financing, is it a one-year bridge, and you have extension options on your side or is it just limited to one year?
No, it's a 1-year with extension options.
On the Schaeffler side?
Yep.
Okay, thank you very much.
The next question comes from Kjell Geilen from APG. Please, go ahead.
My question. Maybe on page seven, if you could elaborate exactly how it works with IHO Holding, which no longer seems to be having its 50% stake in Vitesco. Will they be contributing in kind to Schaeffler New or how would that exactly work?
IHO Holding, as you know, in the merger, AGMs has votes. If they support the transaction, what we believe, because IHO Holding is the Schaeffler family, the end result would, after the merger, be a 70% stake in the merged entity. You basically bring together the 70.5 and the 40.9, and now it depends on the exchange ratio into this new company, huh?
Again, it's a function of the exchange ratio. It's a function of how much shares are owned after the offer. If you, after the offer, draw a little line from Schaeffler AG owning, let's say, 25% of the Vitesco shares, if you then merge Vitesco into Schaeffler AG share, you also merge the two shareholdings, and IHO would receive, in turn, for the, in turn, for the re...
for the merged Vitesco, new shares into Schaeffler AG new. And again, the calculation at the moment, under certain assumptions, is 70% common shares of IHO with full voting rights and 30% free float common shares, also with full voting rights, post-transaction in the new Schaeffler entity.
Noted. So no, no cash flow towards IHO. It's all on a, on a non-cash basis.
It's all on a no-
Yep.
Cash basis, no pass-through, whatsoever. It's a very clear and simplified structure. All of you that have followed Schaeffler for long know that we came out at the IPO time with non-voting common. That was always a little bit challenging, but that's what the family wanted. And then now take the next step to make this even more capital market ready by giving up the non-voting common and turning them into voting shares.
Okay. Noted. Thanks.
You're welcome.
The next question comes from Tom Swift from Morgan Stanley. Please, go ahead.
Thank you, Renata. Hi, Klaus. Hi, Klaus. Just a couple of questions from my side on the credit piece. Can you just confirm, you know, in terms of the bridge being taken out, that all of it will be done at, Schaeffler AG, i.e., will, you know, any of that be done up at IHO GmbH? That's the first question. And then secondly, I guess looking forward, does this mean that you're potentially thinking about, you know, disposals either on the legacy Schaeffler AG side or on the Vitesco side? Thank you.
We don't expect any opposed disposals. There's also no need for disposals because we explained to you the leverage situation post-transaction. And in terms of the acquisition bridge, we'll refinance that through the bond market. The acquisition bridge is a Schaeffler AG bridge. It has nothing to do with IHO. And therefore, the refinancing, the takeout financing, will also be done at Schaeffler AG new level.
Very clear. Thank you.
You're welcome.
The next question comes from Marc-René Tonn , from Warburg Research. Please, go ahead.
Yes, good afternoon. Thank you for taking my questions. On the revenue target, which you set for the e-mobility business, which at 4 times the EUR 2.4 billion, seems to be at around, let's say, EUR 9.6 billion for 2030, which because it puts it at the lower end of, of, let's say, Vitesco's at least indication, which they gave for that year on, on, let's say, on a standalone. Is it you being cautious, or is there anything like intra-group eliminations we should be aware of that play a role in this, let's say, perhaps a bit more cautious target when it comes to this revenue number for 2030? Thank you.
Well, thanks for the question. I mean, as I said before, this is an outside-in calculation. We wanted to give you on that page eight a little bit of an indication. We then said on the next page to grow around 4 times by 2030. Can that be more? Yes, certainly. Do we want to be on the safe side? Absolutely.
The earlier we can do joint planning, and that still requires some steps to be made, we can give you more accurate projections. This is just to illustrate which part of the business will grow into what sales share going forward. That was the intention here, but it's not intended to give you already some sort of guidance or midterm target.
Okay. Thank you.
You're welcome.
The next question comes from Chris Leung from Federated Hermes. Please, go ahead.
Hi, good afternoon. Thank you for taking my question. Just a very quick one. Could I ask, the Schaeffler dividends that you've put in, in one of your slides, would that include any extraordinary dividends, or is that just simply in accordance with your dividend policy of 30%-50%? Thank you.
Well, our dividend policy is, has been since the IPO, 30%-50% of net income, adjusted for one-off restructuring. We have always paid in the last years at the upper end of the range and will continue to maintain that ratio. It does not include, and it has never included any special dividends. And special dividends are not part of this, they are not necessary.
We first now need to bring the two companies together, and we will then continue to pay a decent dividend, in for 2025 out of the results in 2024, and for 2024, out of the results of 2023. And, as long as Vitesco is a separate company, they will also pay their dividend according to their dividend policy. For the joint company, we already indicate that 30%-50% would be our target.
Thank you very much.
You're welcome.
The last question for today's call comes from David Abraham from BTIG. Please go ahead.
Good afternoon. Just a quick question. In terms of the statutory valuation procedure, which you talk about for the establishing of the merger ratio, how should we be thinking about this? Would this be done via an IDW S1 type valuation? And will VWAP have any bearing on it, please?
Well, it will be done exactly as you said, through an IDW S1 calculation. There will be an independent valuation expert that ideally is mandated by the two companies together. If Vitesco thinks they want to use a different one, then there would be two different ones. But that is how it is customary in Germany, that an independent valuation expert is tasked to bring up that valuation ratio.
It would then be part of the invitation to the annual general meetings where the merger is decided. And again, it's based on valuations that have underneath the respective standalone plans and also more detailed synergy calculations.
Thank you. In terms of the synergy calculation apportionment, is there any way that it will be split, it will be split 50/50 between the two, or will it be more heavily weighted towards one or the other?
It's an interesting point, and again, we can only give you a first feeling here. But given the size of the companies, given the fact that there are also synergies that are purely coming from the fact that we're putting Schaeffler businesses together, think about the fourth division that we presented to you.
An indication could be 2/3 on the Schaeffler side, 1/3 on the Vitesco side. But again, this is simply an indication. I think 50/50 would probably be a little neglecting the points that I just mentioned. So maybe that's a better indication just for clarifying the point, directionally.
Excellent. Thank you very much.
You're welcome.
In the interest of time, we have to stop the Q&A session, and I hand back to Klaus Rosenfeld.
Yeah. Thanks, ladies and gentlemen, for all your questions and the interest. As I said, this is a landmark transaction for us at Schaeffler. We are enthusiastic about the prospects of what can be achieved here, and we look forward to much more interaction with you in the next hours and days, and certainly in the road shows. It is an execution path that is very clear.
It comes certainly at uncertain times, but we are convinced that if we get this done here, we'll create something that is stronger together. We welcome our partners in Vitesco to this transaction, and we hope that together, we'll be able to create significant value for you as our shareholders. Thank you very much. Enjoy the rest of your day, and see you all soon. Thanks. Bye-bye.
Thank you.
... This is now concluded, and you may disconnect your telephone. A replay will be available shortly. Thank you for joining, and have a pleasant day. Goodbye.