If all goes according to plan, Continental AG’s €11.4 billion ($15.6 billion) offer to buy Siemens VDO Automotive AG will put it among the biggest automotive suppliers in the world by year’s end.

Continental says the proposed acquisition is the largest in the tire and parts supplier’s 136-year history.

The deal was announced today after months of wrangling with Siemens AG, which inadvertently had put its automotive operation in play with a disclosure it planned an initial public offering of the division.

In addition to Continental, TRW Automotive Inc., majority owned by private-equity firm Blackstone Group, also had expressed interest in acquiring Siemens VDO, reportedly offering as much as €12 billion ($16.4 billion) for the supplier.

Supervisory boards of both Continental and Siemens have OK’d the sales agreement, which is subject to government approval.

Combined, the two will boast €24.9 billion ($34.1 billion) in sales annually and employ some 140,000 workers worldwide.

Continental says about €19.1 billion ($26.2 billion) of total revenue is tied to the original equipment automotive sector (including €10.0 billion [$13.7 billion] from Siemens VDO), which ranks the merged company No.5 on the list of global automotive suppliers behind Robert Bosch GmbH (€23.6 billion [$32.3 billion]), Denso Corp., Delphi Corp. and Magna International Inc. and just ahead of Johnson Controls Inc.

The merger drew applause from DaimlerChrysler AG CEO Dieter Zetsche, who during a conference call to discuss his company’s second-quarter earnings says, “'We appreciate the decision of today.”

It also earned support from Christian Wulff, the premier of Germany’s Lower-Saxony state, who likes the idea of Siemens VDO remaining in German hands.

“We want Conti and VDO to come together, then we will have a major automotive supplier that acts from Germany and is globally active,” Wulff is quoted as saying. “'It would be much worse for workers of the Siemens automotive supply unit if international financial investors had access to the technology, the jobs and the facilities.”

Continental Chairman Manfred Wennemer says he is “well aware of the magnitude of the task” ahead in merging the two Top 15 automotive suppliers. But he says the tie-up is a “once-in-a-lifetime opportunity to forge a global frontrunner in the automotive supplier sector.

“By joining forces, pooling our innovative prowess and allying our leading positions worldwide in key market segments like safety, chassis, powertrain systems and telematics/infotainment, we are extremely well placed to take on the global competition and to profit from all mega-trends in our branch of industry," he says. “A high measure of flexibility, creativity and willingness to institute change is a sine qua non all around in the demanding process of integrating the two companies in a spirit of genuine partnership. We are convinced that the creativeness of both companies’ committed employees will allow our joint project to be crowned with success.”

Wennemer says the new Continental will benefit from pooled know-how in such system technologies as driver assistance, environment sensors, telematics and electronic brakes. It also will be able to better exploit its position in the market for electric motors and other hybrid-electric vehicle technology and engine and transmission management systems, he says.

“At the same time, we are significantly expanding our market position in Europe, North America and Asia,” Wennemer notes.

The purchase price is “commensurate and fair,” he adds, given the market outlook for such systems due to the increased emphasis worldwide on more fuel efficient, less polluting and safer vehicles.

Wennemer says synergies developed as a result of the merger should equate to a minimum of €170 million ($233 million) annually as of 2010 and about €1 million ($1.4 million) in tax advantages.”

Continental expects to close the deal in the fourth quarter. It plans to complete the integration of the two companies by the end of 2009, with most of that task wrapped up by the end of next year.

Wennemer doesn’t detail the company’s future organizational structure, but says it will be market driven, efficiency-oriented and effective.

“Nothing is going to change as far as the business units’ and divisions’ entrepreneurial orientation – in the truest sense of the word – is concerned,” he says.

Earlier, Continental Automotive Systems President Karl-Thomas Neumann told Ward's he views the two suppliers as a “very nice fit.”

“If you look at the two portfolios, you find a few areas of overlap, but the majority is in business areas which support each other,” he said in a May interview.

Continental produces tires brakes, air suspension systems, telematics control modules, sensors and other electronic components. The company says it is the No.1 supplier of foundation brakes and telematics for passenger cars and the top OE tire manufacturer in Europe for cars and light trucks. Employment totals 87,000 workers.

Wennemer says there are no plans to sell off Continental’s tire operations that account for €1.5 billion ($2.1 billion) in sales and employ 32,950 workers.

Core product sectors for Siemens VDO include fuel injectors, electronic throttle controls, air induction systems, instrument gauges, radio head units, navigations systems, sensors, electric motor drives and a vast array of other electronic components. The company also has been trying to crack the brake sector with its innovative “wedge” brake design. It currently employs 53,000 workers.

A Continental spokesman says the Siemens VDO name will be dropped entirely and not carried over for any divisions or product lines.

dzoia@wardsauto.com