(Bloomberg) -- Bank lenders who suffered heavy write-downs when German auto supplier Leoni AG was restructured last year are set to receive a payout if a takeover deal with Chinese supplier Luxshare goes through.
The vast majority of the €205 million ($221 million) proceeds from the sale of a 50.1% share in the company are set to be channeled to lender banks, Chief Executive Officer Klaus Rinnerberger said in an interview. Luxshare will also buy Leoni’s cables business for €320 million, with the proceeds going toward reducing debt.
Leoni restructured €1.6 billion of debt last year after it buckled under increases in raw material prices and supply-chain disruption. As part of the deal, Austrian businessman Stefan Pierer injected fresh funds to become sole shareholder of the business and bank lenders were granted the right to 45% of future profits in exchange for writing off around half of their loans.
Pierer, who will now become a minority shareholder in Leoni, is known for making turnaround bets on companies, including motorcycle manufacturer KTM and firetruck maker Rosenbauer.
Leoni’s current debtload will be refinanced once the deal closes, according to Rinnerberger, who has helmed the manufacturer of wiring systems since April 2023.
Chinese Takeover
The tie-up with Luxshare is in part testament to the pressures facing the European automotive market, which is struggling with waning demand as consumers balk at the high price tag on electric cars. Slim margins make suppliers to major carmakers like Leoni particularly vulnerable to unexpected drops in orders.
With Chinese carmakers poised to grab more market share from European peers, there is also a risk that domestic suppliers could face being locked out of the market, Rinnerberger said.
“The Chinese have simply done their homework, especially in the automotive market over the last 20 years,” he said. “One of the advantages of this strategic alliance is it gives us the opportunity to participate in the value chain as Chinese carmakers enter the European market.”
As well as helping them broaden their footprint to other markets, the partnership will also help Leoni resolve issues such as gaps in its product offering, in particular connectors, Rinnerberger said.
“We simply would not have been able to cope — or at least there would be a risk — with these deficiencies in the long run,” Rinnerberger said.
--With assistance from Marton Eder.
(Updates with context throughout.)
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