Vitesco Technologies Spin-off

The shares of Vitesco Technologies are expected to be listed on the Regulated Market (Prime Standard segment) of the Frankfurt Stock Exchange on September 16, 2021 under the symbol “VTSC”, so that from that day on, Vitesco Technologies will be an independent publicly-traded company.

The spin-off is expected to take effect on September 15, 2021. Immediately thereafter, expected on September 16, 2021, all Vitesco Technologies shares will be admitted and traded on the Regulated Market (Prime Standard segment) of the Frankfurt Stock Exchange.

Vitesco Technologies’ share ISIN is DE000VTSC017, with WKN being VTSC01 and the Börsenkürzel VTSC.

In view of the fundamental changes taking place in the automotive industry, the executive board of Continental AG resolved in 2018 on a strategic realignment which included the operational and organizational separation of the business of the former Powertrain division (since January 1, 2020, the (former) Powertrain division comprised the business activities of the group sector Powertrain Technologies and of the Powertrain business area) of Continental Group by way of a carve-out. In 2019, Continental’s Executive Board then took the strategic decision to spin-off of the business activities of the Powertrain business area and transfer the business to Vitesco Technologies. The general shareholders’ meeting of Continental AG approved the spin-off on April 29, 2021 at the Annual General Meeting.

The decision to transform Vitesco Technologies into an independent group is essentially based on changes in the (global) powertrain business. Rapid adaptability is essential in order to succeed in this business. As a separate and independent corporate group, the Vitesco Technologies Group will be better equipped to react to market developments. As a result of shorter decision-making channels, the Vitesco Technologies Group will be able to increase its speed and agility. Its clear focus is on electrification, e-mobility and electronics, supported by an independent brand presence aligned with this focus.

The executive board of Continental AG resolved with the approval of the supervisory board to legally separate the business activities of its Powertrain business area, to be renamed Vitesco Technologies, and to spin-off by way of absorption (Abspaltung zur Aufnahme) in accordance with the German Transformation Act these business activities to Vitesco Technologies Group AG. The annual general meeting of Continental AG approved the spin-off on April 29, 2021. As consideration for the spin-off, the Continental shareholders will be allocated shares in Vitesco Technologies proportionately to their participation in Continental AG. Continental AG will retain 20,000 shares in Vitesco Technologies Group AG (equal to around 0.05% of the share capital after the spin-off) which will not be spun off in the spin-off and intended to be sold in the market after the spin-off. Immediately after the spin-off takes effect, the shares in Vitesco Technologies Group AG will be admitted to the Regulated Market (Prime Standard segment) of the Frankfurt Stock Exchange.

The executive board of Continental had thoroughly reviewed and carefully considered each of the options. In the view of the executive board of Continental, compared to alternative transactions, the spin-off was in the best interest of Continental AG and its shareholders. The successful implementation of the spin-off does not depend on a positive capital markets environment to the same degree as would be the case with a public offering of the shares by way of an IPO. The direct allocation of the shares in Vitesco Technologies Group AG to the shareholders of Continental AG gives them the freedom to separately decide on two independent investment profiles. A detailed explanation of the reasons for the spin-off decision is contained in Chapter III of the Joint Spin-off Report.

Georg F.W. Schaeffler and Maria-Elisabeth Schaeffler-Thumann, Herzogenaurach, via indirect shareholdings in IHO Verwaltungs GmbH, Herzogenaurach and IHO Beteiligungs GmbH, Herzogenaurach (the IHO shareholders) hold 46% of Continental AG’s shares and voting rights prior to the spin-off and will therefore hold 46% of the shares of Vitesco Technologies Group AG upon completion of the spin-off. With this 46% shareholding, the IHO shareholders could block decisions proposed by Vitesco Technologies Group AG to its shareholders, in particular those requiring a three-quarter majority. Such decisions include, but are not limited to, corporate actions (such as capital increases) and certain reorganizations. Moreover, this shareholding may provide the IHO shareholders with a majority of the votes present at the general shareholders’ meetings (assuming that not more than 90% of the share capital will be present at such general shareholders’ meetings). Therefore, the IHO shareholders may be in a position to have resolutions passed which only require a simple majority.

Vitesco Technologies received various services from the Continental Group and entered into various transactions with the Continental Group and the Schaeffler Group in the past. As not all manufacturing plants of the Continental Group and Vitesco Technologies have been separated, some plants are still producing products for Continental Group and vice versa under a contract manufacturing arrangement. The two companies are expected to wind down contract manufacturing in the following years. After completion of the spin-off, Continental Group and Vitesco Technologies will supply each other with products outside the scope of contract manufacturing based on framework agreements entered into between the parties on arm’s length terms. For further information, see the notes (note 36) to the Company’s Annual Combined Financial Statements, which are included in the section “19 Financial information” of the Prospectus on page F-117 et seqq.

For details of the (financial) impact of the separation on Vitesco Technologies, please refer to the Joint Spin-off Report of Continental and Vitesco Technologies.

Vitesco Technologies benefits from the ongoing and accelerating global push towards electrified vehicles – according to experts ~60% of new light vehicles worldwide will be electrified by 2030. The company aims to become the first supplier to fully embrace the transition to electric mobility and is investing in electrification since 2006. The focus of Vitesco Technologies is on its strong Underlying Business (Core Technologies[1] of EC and S&A excl. Non-Core ICE Technologies[2] and CM) base with above-average profitability which funds growth in electrification. Core Technologies (Core Technologies of EC, S&A as well as the ET business unit excl. Non-Core ICE Technologies and CM) shows anorder backlog of EUR 41bn with almost EUR 6.9bn in Electrification Technology as of the end of FY2020. In addition, Vitesco Technologies is positioned to benefit from electrification across all business units with strong system expertise regarding complete powertrains. The company powers clean mobility along the whole value chain with a 100% carbon neutral scope 1&2 target by 2030.

[1] Vitesco Technologies’ business excluding Non-Core ICE Technologies and CM.

[2] Technologies and products for ICEs, manufactured within EC and S&A, which are not considered part of Vitesco Technologies’ core technologies, such as fuel injection equipment, fuel delivery, selective catalytic reduction systems as well as turbochargers

Continental AG shareholders will receive one share in Vitesco Technologies Group AG for every five Continental AG shares held at the time of the spin-off, based on a share allocation ratio of 5:1 stated in clause 10 of the spin-off and transfer agreement. Continental AG will retain 20,000 shares in Vitesco Technologies Group AG (equal to around 0.05% of the share capital after the spin-off) which will not be spun off in the spin-off and intended to be sold in the market after the spin-off.

The spin-off will be a pro rata (verhältniswahrend) spin-off in exchange for the granting of registered no-par value shares of Vitesco Technologies Group AG to the shareholders of Continental AG pro rata in proportion to their respective participations at the time when the spin-off takes effect. When the spin-off takes effect, the Continental AG shareholders will receive one registered no-par value share in Vitesco Technologies Group AG for every five no-par value bearer shares in Continental.

For any part of your position in Continental AG shares that cannot be divided by five, you will receive fractional shares (Teilrechte) in Vitesco Technologies with ISIN code DE000VTSC0T7 / WKN VTSC0T. A rounding of the fractional shares to a full share (so-called settlement of fractional shares (Spitzenregulierung)) by the respective depositary bank requires that a corresponding buy or sell order be issued by the shareholder to its depositary bank as soon as possible, but no later than presumably October 5, 2021. For the avoidance of doubt, fractional shares are not tradable for the individual shareholder but will be aggregated on a depositary bank level.

Each shareholder of Continental AG will receive one share in Vitesco Technologies in exchange for every five Continental AG shares with the spin-off taking effect. No additional cash payments are envisaged. The determination of the share allocation ratio of 5:1 was essentially influenced by the following parameters:

• The aim was to determine the amount of Vitesco Technologies Group AG’s future share capital in a reasonable proportion to its equity and the expected market capitalization of Vitesco Technologies Group AG and to reasonably reflect the sizes of the transferring entity and the acquiring entity.
• The share allocation ratio of 5:1 also accounts for the objective to limit the number of fractional entitlements that may arise because of the allocation of Vitesco Technologies Group AG shares to Continental AG shareholders.
• A lower share allocation ratio would have led to a larger number of Vitesco Technologies Group AG shares. As a result, given the significantly larger number of shares, Vitesco Technologies Group AG’s equity value and stock market value would have been pro-rated to this larger number of shares, missing the goal of having an attractive stock exchange price for the Vitesco Technologies Group AG shares.

A detailed explanation of the spin-off ratio is contained in Chapter VII of the Joint spin-off report.

Nothing. Your custodian bank will automatically credit the Vitesco Technologies Group AG shares into the securities account in which your Continental AG shares are held and you will effectively hold both separate share positions on or around September 16, 2021.

Vitesco Technologies Group AG shares are expected to be credited to the securities account of the relevant Continental AG shareholder on or around the day when Vitesco Technologies Group AG shares start trading provided that these are not based on fractional shares for the account of the shareholders.

The determination of who is Continental AG shareholder for the purposes of allotment of Vitesco Technologies Group AG shares will be made on September 15 in the evening, based on the respective securities account holdings in Continental AG shares taking into account any stock exchange transactions still outstanding.

No. You will receive Vitesco Technologies Group AG shares for your Continental AG shares irrespective of the bank where the respective securities account is maintained. In case of a securities account outside Germany, booking may eventually take longer, depending on the custodian bank.

No separate valuation of Vitesco Technologies is made in the context of the spin-off. The price of Vitesco Technologies Group AG shares will be determined from the first day of ordinary stock exchange trading. The initial share price will be determined during the opening auction on Xetra. The price of Vitesco Technologies Group AG shares will depend on the supply and demand for Vitesco Technologies Group AG shares.

Vitesco Technologies Group AG shares will be available for purchase through any broker in ordinary trading when trading starts, expected for September 16.

Technically, the price of Continental AG shares will be quoted “ex spin-off”, expected on September 16 after the spin-off becomes effective. The market value of each Continental AG share will adjust to reflect the impact of the spin-off.

The number of Continental AG shares that you own will not change as a result of the spin-off, but the share price of the Continental AG shares will adjust to reflect the impact of the spin-off. Expected on September 16, Continental AG's shareholders receive one share of Vitesco Technologies Group AG for each five shares of Continental AG that they owned.

The allocation of shares is free of commissions and fees for the Continental AG shareholders who are entitled to an allocation and who held their Continental AG shares in securities accounts in Germany. For securities accounts abroad, commissions and fees may be incurred.

The entire share capital of Vitesco Technologies Group AG will be divided into 40,021,196 registered shares (auf den Namen lautende Aktien) with no-par value upon effectiveness of the (technical) capital increase in connection with the spin-off.

A level 1 ADR program has been implemented, so that each holder of 10 ADRs in Continental AG receives 1 ADR in Vitesco Technologies Group AG. There is no requirement for any additional action from your side. To the extent a holder of Continental ADRs is, due to the share allocation ratio under the spin-off and the terms of the Continental sponsored ADR program, not entitled to full Vitesco Technologies ADRs, Deutsche Bank Trust Company Americas (or a representative of the depositary) will sell the shares in Vitesco Technologies Group AG attributable to the Continental ADRs on the stock exchange after commencement of trading and distribute the proceeds, net of applicable taxes, fees, charges and expenses, pro rata to such holders of the Continental ADRs.

To the extent that a shareholder is tax resident in Germany, the Continental AG shares are held as private assets and the shareholder held at no time during the last five years at least 1% of Continental AG (Section 17 Income Tax Act (Einkommensteuergesetz)), the spin-off – with the exception of the sale of fractional rights – should generally be tax neutral. I.e. no taxable capital gains would be realized, if, in particular, the right of the Federal Republic of Germany to tax a gain from the disposal of Vitesco Technologies Group AG shares is not excluded or restricted. As a consequence, no tax on capital gains would have to be withheld and paid. Please understand that we cannot provide individual answers relating to the tax consequences of the spin-off for shareholders. A general description of tax consequences of the spin-off for shareholders is included in the Spin-off Report.

Shareholders of Vitesco Technologies Group AG are subject to taxation similarly to any other share held. Please understand that we are not allowed to provide individual information on the tax consequences of the spin-off for shareholders.

Here you can find the IRS Form 8937 - pdf (348KB) which is also applicable to the ADR program.