Germany's Continental to buy U.S. firm Veyance for $1.9 billion

Flags of Germany's Continental AG hang in the rain during a board meeting of Continental in Frankfurt, in this March 6, 2009 file photo. REUTERS/Kai Pfaffenbach/Files

By Andreas Cremer BERLIN (Reuters) - German tire and car parts maker Continental has agreed to buy U.S. private equity investor Carlyle Group's Veyance Technologies, which once belonged to its rival Goodyear , for 1.4 billion euros ($1.9 billion). Veyance, which employs 9,000 workers at 27 plants worldwide producing industrial hoses and belting, will be integrated into the German company's Contitech division, Continental said. "Veyance will make an immediate positive contribution to the company's profitability," Chief Executive Elmar Degenhart said, adding that the purchase will be paid for from cash and available credit lines. Contitech can imagine further acquisitions after the purchase of the U.S. competitor, which will raise the share of non-automotive sales at Continental to 32 percent of group revenue from 28 percent, still short of a 40-percent goal, division chief Heinz-Gerhard Wente said on a conference call. Continental expects group sales to rise by more than 5 percent this year to about 35 billion euros as world auto markets recover, the company said last month. The company aims for its adjusted operating margin to stay "comfortably" above 10 percent, after 11.2 percent in 2013. It is due to publish full results for 2013 on March 6. Carlyle bought Veyance from Goodyear Tire and Rubber Company in 2007 for $1.475 billion and was licensed to continue to use the Goodyear Engineered Products brand for its range of belts, hoses and other products. The addition to Contitech, which accounts for more than 10 percent of Continental's 2013 sales of 33.3 billion euros, will increase the company's presence in the United States and South America and create other opportunities overseas, Wente said. Combined with Veyance, Contitech will have 39,000 employees and sales of about 5.4 billion euros. Veyance generated more than half of its $2 billion 2013 sales in North America. The deal, the closing of which is not expected before late September, may create synergies worth about 75 million euros in the next four years, Wente said. Fitch Ratings said on Monday that the purchase will have no immediate impact on Continental's ratings. "The negative effect on credit metrics is modest and should be offset by the mildly positive impact on the group's business profile," the firm said. Barclays and Latham & Watkins LLP were financial and legal advisers to Carlyle. Freshfields Bruckhaus Deringer LLP served as a legal adviser to Continental. The acquisition announced on Monday ranks among Continental's biggest deals to date and is Contitech's largest purchase by sales volume, a spokesman said. In 2007 Continental bought Siemens's VDO automotive division for 11.4 billion euros, still the biggest purchase in the company's 142-year history. A year earlier, Continental acquired the automotive electronics unit of Motorola Inc for $1 billion to expand in in-vehicle communications. ($1=0.7343 euros) (Additional reporting by Soyoung Kim.; Editing by Arno Schuetze and Greg Mahlich)