Siemens talked to Continental CEO on VDO sale

The CEOs of Siemens AG and Continental AG have discussed Continental's taking a stake in Siemens' automotive-engineering unit VDO, Siemens said.

A meeting between Siemens' Klaus Kleinfeld and Continental's Manfred Wennemer took place between the end of the World Economic Forum in Davos at the end of January and the beginning of this week, a Siemens spokeswoman said today.

Industrial conglomerate Siemens said two weeks ago it planned to carry out an initial public offering of between 25 and 50 percent of VDO, which is valued at about $6.5 billion (5 billion euros), by the end of September.

Continental said almost immediately it was interested in the unit, citing a large overlap between the two firms' products.

Some analysts say if Continental took over VDO it could transform the company, more than doubling sales in its car-parts business and realizing significant synergies. But its balance sheet would be stretched.

Siemens has played down chances for a sale to Continental.

"Floating VDO is still our preferred option," the spokeswoman said. A VDO spokesman added: "Of course Kleinfeld and Wennemer are talking, but this does not automatically mean this will lead to concrete results."

Siemens does not consider the VDO unit, which had sales of $12.95 billion (10 billion euros) in fiscal 2005/06, to be a core business, but wants to keep a majority stake in it over the long term.

A Continental spokeswoman today reiterated the company's interest in VDO.

Neither company would comment on the content of the talks between Kleinfeld and Wennemer or say whether further meetings were planned.

"From Continental's perspective, they have to be striving for a complete takeover. But Siemens wants to maintain management control," said MM Warburg analyst Marc-Rene Tonn.

He said Siemens managers were likely concerned that a sale to Continental could trigger sweeping job cuts at VDO, prompting the kind of criticism Siemens faced when it sold its mobile telephone business to Taiwan's BenQ.

Continental's reputation for driving a hard bargain could also hinder the talks, said HVB analyst Georg Stuerzer.