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Continental CEO Degenhart to Resign, Citing Health Reasons

Bloomberg logoBloomberg 10/30/2020 Christoph Rauwald and Eyk Henning
a man wearing a suit and tie: Elmar Degenhart, chief executive officer of Continental AG, gestures whilst speaking during a news conference to announce earnings in Frankfurt, Germany, on Thursday, March 7, 2013. © Bloomberg Elmar Degenhart, chief executive officer of Continental AG, gestures whilst speaking during a news conference to announce earnings in Frankfurt, Germany, on Thursday, March 7, 2013.

(Bloomberg) -- Continental AG said Chief Executive Officer Elmar Degenhart will step down on Friday, citing health reasons, amid a push by the German company to overhaul management and speed up structural changes.

Chairman Wolfgang Reitzle plans to make a decision on Degenhart’s successor soon, the Hanover-based manufacturer said late Thursday without elaborating.

Bloomberg News reported earlier that Continental has been mulling replacing Degenhart with the head of its core automotive operations, Nikolai Setzer, according to people familiar with the matter, who declined to be identified because the information is private. A spokesman for Continental declined to comment on CEO succession plans.

Continental fell as much as 1.9% in early Frankfurt trading, valuing the company at about 18 billion euros ($21 billion).

Degenhart, whose contract extends through 2024, has faced criticism for several missteps including communication around the foreclosure of a German tire plant in Aachen as well as an unusually harsh letter to employees in September 2018.

Those have undermined some supervisory-board members’ confidence that he is the right executive to lead Europe’s second-largest auto supplier at a time when the industry is facing massive challenges in its shift to electric and autonomous vehicles, some of the people said.

Setzer, 49, runs Continental’s large automotive business, and will likely prevail over other internal and external candidates being considered to succeed Degenhart, the people added.

Sprawling Portfolio

Continental’s management board has nine members, an unusually large number for Germany’s blue-chip DAX index and a reflection of the 150-year-old company’s sprawling portfolio of operations. Chairman Reitzle, a renowned deal maker at industrial-gas company Linde AG and cement firm Holcim AG, has pushed to make Continental more nimble and react faster to technological changes in the industry, some of the people said.

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Continental’s shares surged to an all-time high in January 2018 after the firm confirmed a Bloomberg News report that the maker of tires, powertrains and conveyor belts was considering options to streamline itself.

Management has made little progress with that operational review in the almost three years since then, contributing to the erasure of almost two-thirds of its market value. The rout worsened when Continental and its peers suffered a major blow from the coronavirus pandemic as carmakers shut showrooms and factories for several weeks earlier this year.

Rivals’ Spin-Offs

Investors have repeatedly criticized the lack of resolve and speed with which Degenhardt, 61, has addressed the firm’s complex structure. A first step of the intended simplification -- the carve-out and listing of Continental’s combustion-engine-powertrain operations -- was put on hold for an indefinite period.

Listing part of the powertrain division would be a step toward making Continental more nimble and hone in on growth areas such as electric vehicles and self-driving features. The unit generated 7.7 billion euros in sales last year and employed more than 40,000 people.

Rival auto suppliers have spun off their combustion-engine businesses in recent years to concentrate on electrified powertrains or autonomous-driving technology. Delphi Automotive Plc split itself into two listed companies -- a powertrain unit dubbed Delphi Technologies Plc and a software-focused company called Aptiv Plc -- in late 2017. In a similar move, Sweden’s Autoliv Inc. listed its electronics unit Veoneer Inc. in early 2018.

Degenhart has indicated that a listing of its powertrain unit might be just a first step, saying a partial-share sale of a minority stake in its massive rubber division could help fund potential acquisitions that are beyond the company’s current ability to afford.

(Updates with shares in fourth paragraph.)

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