Continental AG Buys Elektrobit's Auto Unit in Bid to Boost Software Presence

NEW YORK (The Deal) -- German automotive supplier Continental AG (CTTAY) Tuesday agreed to buy the automotive software unit of Elektrobit (EBTTF), preempting a planned split at the Finnish technology company and boosting its own software activities as carmakers scramble to produce self-driving models.

Continental, which is based in Hanover, Germany, will pay 600 million euros ($671.8 million) for Elektrobit Automotive, which is based in Erlangen, Germany. Continental as already secured the backing of the Elektrobit board as well as shareholders owning 46% of the seller's stock.

"The acquisition will fit well with the automotive supplier," wrote Commerzbank AG analyst Daniel Schwarz in a note. "Elektrobit Automotive is profitable and closely connected with Volkswagen AG (VLKAY). It's a positive deal." Schwarz has a hold rating on Continental shares.

Carmakers around the world are scrambling to meet consumer demand for cars that are not only continuously connected to the Internet but also have the capability to drive themselves. Finnish telecommunications company Nokia (NOK) has discovered a strong appetite for its Here mapping division since maps will be key to cars that can at least partially navigate themselves.

German car companies, investors and even limo company Uber Technologies are all reportedly vying for that division, which analysts have said could go for as much as 3 billion euros.

Elektrobit appears to have put automotive division up for sale in February when it announced plans to spin out its larger, mobile phone software unit, based at the corporate headquarters in Oulu, Finland, and rename it Bittium. The smaller, German-based automotive division would have retained the Elektrobit name as well as the company's current Helsinki listing.

Elektrobit said now it will simply rename itself Bittium and retain the current listing with the automotive activities going to Continental.

A June 11 shareholders' meeting at Elektrobit to vote on the original plan will instead be used to vote on the sale, though shareholders apparently approve: The company's stock leaped 21.8%, or 0.89 euros, to 4.97 euros in midday Helsinki trading, valuing the company at 646.8 million euros. Elektrobit's U.S.-listed shares were up $1.12, or 25.9%, at $5.44.

"Elektrobit intends to repatriate the majority or all of the net proceeds from the transaction to shareholders after the closing of the transaction," said Elektrobit CEO Jukka Harju in a statement.

The target's automotive business employs about 1,900, primarily in Germany, and had first-quarter sales of 49.1 million euros, resulting in 3 million euros of operating profit. Elektrobit said the sale would boost its full-year profit by 530 million euros.

Continental shares gained 3.2%, or 6.90 euros, to 219.75 euros in Frankfurt. Its U.S.-listed shares were up 89 cents, or 1.8%, at $49.12.

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