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Rolled Over At Germany's Continental


International Business

ROLLED OVER AT GERMANY'S CONTINENTAL

The trans-Atlantic flight last June was hardly a pleasant one for Horst W. Urban, the chief executive officer of German tire giant Continental. He was on a troubleshooting trip to the U. S. to check up on ailing General Tire Inc., acquired by Continental in 1987. Flying with him was Ulrich Weiss, an executive board member at Deutsche Bank and also Conti board chairman. On the trip back to Germany, Weiss handed Urban a thin folder. It contained a bombshell, one that would touch off months of vicious boardroom battles and raise gut issues such as personal loyalty. The folder contained a draft proposal for a buyout by Italian tiremaker Pirelli, which wanted to double its market share. The events triggered by the Pirelli plan would eventually lead to the end of Urban's career at Conti.

What particularly shocked Urban was that he had heard absolutely nothing about the bid though it had been broached three months before. In March, 1990, Leopoldo Pirelli, board chairman of the Italian company, had approached Weiss and Hilmar Kopper, CEO of Deutsche Bank, about a possible merger. The Italians bypassed Urban, choosing instead to talk to Weiss, who represented shareholders on Conti's board. Deutsche Bank officials kept Urban in the dark because they were worried about Conti's worsening performance. Even Conti's former head, Helmut Werner, now a member of the executive board of Daimler Benz, knew of the bid before Urban.

FLANKING TACTICS. After his U. S. trip, Urban tried to launch a counterattack. But Pirelli had already amassed at least 26% of Conti stock, enough to blunt Urban's first moves. At his company's annual meeting in July, Urban failed to strengthen the company's poison pill and get shareholders to approve issuing new shares that would dilute Pirelli's stake.

By then, Urban knew he had more to worry about than just the Italians. Deutsche Bank seemed to be pushing the merger. Conti's Weiss, who sits on the administrative board of Fiat, is responsible for Deutsche Bank's Italian business and was known to favor some form of cooperation with Pirelli. By mid-September, Pirelli presented a merger plan in which Conti would buy into Pirelli Tire Holding while Pirelli would own most of newly issued Conti stock. Both sides say they planned to disclose their talks.

But Urban, who did not respond to BUSINESS WEEK's written requests for comment, quietly adopted the same flanking tactics used earlier by Pirelli and Weiss, sources say. Just after the Pirelli proposal was reviewed, Urban hired Morgan Grenfell Group PLC, Deutsche Bank's investment arm, to set up a defense. There was more to it than met the eye. Morgan Grenfell's chairman, John Craven, happened to be Weiss's rival on the Deutsche Bank executive board.

Weeks of sparring ensued. At one point, Craven feverishly turned to the German industrial Establishment for salvation. He tried to round up Volkswagen, BMW, and Daimler to buy Conti stock and preserve the company. But they needed Dresdner Bank and insurer Allianz, who refused to join the pool. The effort fell apart. Urban then tried desperately to bring in tiremaker Yokohama Rubber as a white knight that would buy new Conti shares Urban wanted to issue. But Weiss nixed that plan. In late April, he ordered Urban to stop blocking the merger.

A week later, Urban was reduced to pressuring his top executives to sign a letter to the Conti board professing personal loyalty to him. But when the board met for an extraordinary session on May 9, more than half the managers said they had signed under duress. Urban resigned, ending a year of bitter corporate intrigue.Igor Reichlin in Bonn


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