The Schaeffler Group KG (Germany, privately-held; 5251R9N7) has established a separate business entity, Schaeffler GmbH, which will function as the publicly-traded holding company for all Schaeffler business units - INA, FAG, LuK, Continental, and others.

Schaeffler GmbH is now wholly owned by the Schaeffler family, but will eventually issue stock and become a publicly traded corporation once the necessary filings are complete and its merger with Continental AG can be formally concluded.

The capital markets in Germany expect the process to be complete, and Schaeffler GmbH shares be issued, sometime by early 2011. It isn't yet clear what proportion of Schaeffler GmbH will still be held by the family business, Schaeffler KG.

This all becomes necessary because the Schaeffler family went too deeply into debt (USD $17 billion) for its 2008 takeover of publicly-held Continental AG. When Continental's share price plunged 80% in the recession, Schaeffler began scrambling to cover the debt service. But Schaeffler's business units were also hard-hit and the family was unable to accomplish the feat, despite appealing for government aid. Along the way, Schaeffler reached an important agreement with the IG Metall union for concessions in exchange for no layoffs.

A year ago, the Schaeffler family settled on a refinancing arrangement with its banks which essentially saved their company from the jaws of its lenders. But in return, they had to make a historic sacrifice, conceding to change its corporate structure to become public, properly merge with Continental, and lift the veil of secrecy which has surrounded the company for so many years.

Schaeffler GmbH has established the legally necessary supervisory board, with 20 members. Representing the family's share will be Maria-Elisabeth Schaeffler and her son Georg. Also on the board will be Prof. Hans-Joerg Bullinger, Dr. Eckhard Cordes, Dr. Hubertus Erlen, Prof. Bernd Gottschalk, Franz Josef Kortuem, Dr. Siegried Luther, Robin Stalker, and Dr. Otto Wiesheu.

As far as what changes employees, customers and vendors might see, Schaeffler said the transition should be seamless at that level -- just the high-level business structure, not the business operations themselves, will change.

In the longer run, however, most analysts believe Schaeffler's business units will inevitably change as the company's operations, sales and profits are exposed with a transparency never before experienced within Schaeffler. One analyst told eBearing, "There is a big difference between what a privately-held business can do, especially in terms of favored business units and risk-taking and without regard to performance, and what public shareholders will want to see. That's not usually a good thing, since the pressure from public shareholders can pull management's attention away from long-term strategic initiatives backward toward maximizing short-term growth and profits."

Maria-Elisabeth Schaeffler said; "The conversion into a corporation is a very significant step for us toward the capital market. It provides the Schaeffler Group with greater strategic flexibility. In doing so, we preserve the values, which we stand for as a family-owned business."