Electric Vehicle

Schaeffler AG’s public tender offer for Vitesco Technologies

Herzogenaurach | October 9, 2023 | The Executive Board of Schaeffler AG has, with consent of the Supervisory Board, decided to launch a public tender offer for all outstanding shares in Vitesco Technologies Group AG (“Vitesco”) (ISIN: DE000VTSC017) to create a leading Motion Technology
Company with four focused divisions. This includes a combined division E-Mobility with significant growth potential.

Public tender offer with premium

Offer Vitesco shareholders a cash consideration of 91 euros per share. This represents an attractive premium of around 21 percent on the last closing price on October 6, 2023. Additionally, it represents a premium of around 20 percent on the 3-month volume-weighted average share price. For shareholders who invested in Vitesco since the spin-off from Continental AG. This represents a premium of around 52 percent compared to the first Vitesco share price of 59.80 euros on September 16, 2021.

Schaeffler has arranged a comprehensive financing package including an acquisition bridge facility to finance the tender offer. The financing package is fully underwritten by Bank of America, BNP Paribas and Citigroup. The package act act as financial advisors to Schaeffler. Schaeffler has entered into a non-tender
agreement with IHO Holding, the strategic management holding of the Schaeffler family, for its 49.9 percent shareholding in Vitesco.

Further details on the tender offer will be included in the offer document. The offer document is envisaged to be published on November 15, 2023. This will happen following approval by the German Federal Financial Supervisory Authority (BaFin). The acceptance period is expected to last until mid-December 2023. Schaeffler expects the tender offer to be closed in January 2024. The offer document and further information about the tender offer will be made available on: www.strongertogether24.com

The tender offer will not be subject to a minimum acceptance threshold. To other customary conditions, including the receipt of potentially applicable foreign direct investment approvals. Schaeffler has no intention to enter into a domination and/or profit and loss transfer agreement with Vitesco. Schaeffler nor plans for a delisting or a squeeze-out of the remaining Vitesco shareholders following the closing of the tender offer.

Vitesco shareholders can tender their shares into the offer to realize the attractive premium offered by Schaeffler. Alternatively, they have the opportunity to benefit from the significant expected synergies and value creation potential. They can do this by retaining their shares until the proposed merger. When Vitesco shares will be exchanged for newly issued Schaeffler shares. Schaeffler shareholders will benefit from the significant expected synergies and value creation potential. They will also benefit from a simplified shareholding structure and increased liquidity in the shares.

Overall three-step transaction leading to simplified shareholding structure

The tender offer is the first step of a planned three-step overall transaction. This transaction will lead to a merger of Vitesco Technologies Group AG into Schaeffler AG. To this end, following the successful completion of the tender offer, Schaeffler intends to convert its non-voting common shares into common shares with full voting rights, at a ratio of 1:1.

The share conversion is subject to approval of the non-voting common shareholders of Schaeffler at an Extraordinary General Meeting. The related merger approval is subject to the respective Annual General Meetings of both companies. They will determine the merger ratio in advance of the general meetings using a valuation procedure prescribed by law. The procedure will take into account the fundamental valuation of both companies as well as the unaffected share prices. Subject to approval by the shareholders. They expect to complete the overall transaction in the fourth quarter of 2024.

Since IHO Holding already owns a controlling stake in Schaeffler and Vitesco, no merger control clearance is necessary. This applies to the completion of the transaction in the EU. Almost all other jurisdictions also do not require merger control clearance for the transaction. For the few remaining jurisdictions Schaeffler does not expect any prolonged clearance procedures.

The transaction will result in a simplified shareholding structure of Schaeffler, comprising only one share class with full voting rights. Additionally, it will lead to improved liquidity in the share. This improvement will be driven by a larger free float, which is expected to be around 30 percent. Based on that base, we expect that, after the transaction, the Schaeffler share will join the MDAX and MSCI Europe.

Compelling strategic logic

Schaeffler firmly believes that the combination with Vitesco will greatly enhance competitiveness. Especially in the fields of electrification, Schaeffler and Vitesco have highly complementary technology portfolios. This allows the combined company to offer best-in-class solutions across all dimensions. They can leverage the accelerating growth opportunities in e-mobility. Schaeffler and Vitesco will also be able to optimize profitability in conventional powertrain technologies. These technologies will retain an attractive margin and cash profile, as well as in chassis and the Automotive Aftermarket business.

With the transaction, Schaeffler intends to broaden its business and technology portfolio. In particular in the area of e-mobility, Schaeffler establishs a leading Motion Technology Company with four focused,pure-play, divisions with leading positions in their respective end markets:

(1) The E-Mobility Division will combine the highly complementary assets and capabilities of Schaeffler and Vitesco with the ambition to create a market leader in e-mobility with a pro-forma combined orderbook of around 40 billion euros and high growth potential reaching solid profitability in the medium

(2) The Powertrain & Chassis Division will include both partners’ mature businesses and will be a market leader in conventional powertrain plus chassis.

(3) The Vehicle Lifetime Solutions Division will combine Vitesco’s Automotive Aftermarket activities with Schaeffler’s existing aftermarket platform, creating an integrated platform player.

(4) The Bearings & Industrial Solutions Division will consist of Schaeffler’s current Industrial Division and its Automotive Bearings business, with the ambition to build the leading global Bearings & Industrial Solutions company operating in four market clusters.

The new divisional structure will increase transparency on divisional performance supported by high-quality financial disclosure.

Klaus Rosenfeld, CEO of Schaeffler AG, said: “With the launch of the tender offer today, we are initiating a transformative move for Schaeffler. By combining Schaeffler and Vitesco, we will build a leading Motion Technology Company with four focused ‘pure-play’ divisions, a balanced well-diversified portfolio, and critical scale across its businesses. This includes a best-in-class e-mobility champion with significant growth potential. The combination will make Schaeffler and Vitesco stronger together and is beneficial for customers, employees, shareholders and business partners.”

Significant synergy potential

The combination, following the compelling strategic logic, can achieve significant synergy potential with an envisaged EBIT impact of 600 million euros annually by 2029, incurring one-off integration costs of up to 665 million euros. Based on annual 2022 figures, post-merger Schaeffler will have annual Pro-forma sales of around 25 billion euros and a well-balanced divisional and regional mix. The combined company will employ more than 120,000 people with 44 R&D centers and more than 100 production sites, situated in all major regions worldwide.

We expect the transaction to increase EPS in 2026. We anticipate that the leverage ratio will drop below 1.5x EBITDA as early as 2025. Schaeffler remains fully committed to its existing target capital structure and will continue to fully focus on free cash flow, disciplined capital allocation and a 30 to 50 percent dividend payout ratio.

Strong cultural fit, friendly combination envisaged

Schaeffler and Vitesco are an excellent match not only in terms of technology, but also culturally. Both companies, with a technology and innovation-driven mindset, a strong focus on sustainability, and headquartered in Bavaria, have IHO Holding as a joint shareholder.

To ensure a mutually beneficial transaction, Schaeffler commits to engaging in talks with Vitesco regarding a friendly business combination. To this end, Schaeffler will, immediately after the mandatory stock-market notification, reach out to the Vitesco Management and its Supervisory Board to express its desire to cooperate with Vitesco in the best interest of both companies.

Georg F.W. Schaeffler, family shareholder and Chairman of the Supervisory Board of Schaeffler AG: “For my mother and myself as family shareholders, giving away voting rights is a decisive step that in the best interest of the company we have weighed carefully. We believe that now is the right moment to take the next big step in the development of our company, considering the significant benefits that the overall transaction brings to all stakeholders. By combining Schaeffler and Vitesco, who have a strong cultural fit, we will forge a leading Motion Technology Company.”

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