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Continental Says Tough Economic Climate is Obstacle To Pirelli Merger

May 14, 1991

HANOVER, Germany (AP) _ The new chairman of Continental AG said Tuesday merger talks with Italy’s Pirelli SpA make no sense at the time of a slump in the tire industry, but added he will discuss areas of cooperation with Pirelli.

Wilhelm P. Winterstein said sales were expected to be up another 10 percent in 1991, but that the deep slump in the industry and cutthroat competition will produce another sharp decline in earnings.

Against a backdrop of falling results, Continental officials said the current business and economic climate is inopportune for any merger with Pirelli.

Pirelli, the world’s fifth largest tire producer, proposed a merger with Continental, the fourth biggest tire maker, last year. Pirelli claims to hold a stake of about 6 percent in Continental and maintains that holders of more than 50 percent of Continental stock support its proposal.

At a news conference four days after the supervisory board pushed Horst Urban from the management board chairman’s post, the new chairman Winterstein said merger talks with Pirelli ″make absolutely no sense″ at the moment.

Winterstein said everything is on the table in the discussions with Pirelli, but he said he wanted to stress that the talks would be about ″cooperation.″

Winterstein said nothing in Continental’s position regarding Pirelli has changed since Urban’s departure.

″The decision against Urban is not a decision against the strategy of Continental,″ he said. ″We want the uncertainty over the relationship between Continental and Pirelli to disappear. We will therefore sit down together and discuss cooperation possibilities.″

Winterstein, who is seen as an interim chief executive, said he and Guenter H. Sieber, the management board member responsible for marketing and distribution, would negotiate for Continental. Continental officials declined to reveal when and where the first meeting would take place, but said it would be in the coming days.

Analysts said the departure of Urban is likely to lead to some form of cooperation with Pirelli, but they also question whether a full merger is likely.

Ingolf Knaup, Continental’s chief financial officer, said 1991 results will be down ″because of and only because of the U.S.″ The auto industry in the U.S. is in a deep economic slump and the problems at the major American auto makers are felt by all of the suppliers to the industry, he said.

But Knaup said that Continental would show a profit for the year.

Winterstein said the tough business climate in the U.S. is likely to lead to some cuts in the labor force.