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Volkswagen AG is offering euro 6.7 billion ($9.2 billion) for the rest of truckmaker Scania AB after determining that achieving deeper savings among its three commercial-vehicles units is only possible with full control of the Swedish company.
"We've been working here in the past year and gradually came to the conclusion that this is one important step for an integrated truck group," Leif Oestling, who runs the truck operations and is the former Scania CEO, said on a conference call with analysts last night.
The 68-year-old executive, who will retire next year, described the current ownership structure, in which VW controls a majority of Scania's capital and 89.2 per cent of the votes, as "unsatisfactory for all parties" and one that "caused friction" between stakeholders.
VW thus far has only achieved euro 200 million in purchasing savings from Scania, its own commercial vehicles unit and German truckmaker MAN SE, which VW also controls. VW's goal is to deepen cooperation between the three in areas such as drivetrains, chassis, cabins and electronics. Such moves have faced resistance from Scania's minority investors who argue doing so is a disadvantage for the Soedertaelje-based manufacturer, which is more profitable than MAN.
"We must now take a look at the offer and consider it and make an evaluation based on what a long-term owner finds is good," said Mats A Andersson, head of the AP4 pension fund, which owns Scania shares. "This must be evaluated in light of the duty we have for our pensioners and it is not obvious that that is the stock market price plus a few per cent."
Profit boost
By more closely integrating its truck operations, VW said on Friday that it can eventually achieve annual operating profit synergies of euro 650 million. To get there, VW needs to buy out Scania's other investors, who this month asked for an independent auditor to examine whether ownership of the company by VW and MAN poses a conflict of interest.
"There is a lot of frustration regarding how VW has treated their minority shareholders," Carl Rosen, head of the Swedish Shareholders' Association, said in an interview. "We think it is positive that they make this offer."
VW, Europe's largest carmaker, has the financial leeway to pay for the transaction. The Wolfsburg, Germany-based manufacturer's net liquidity at the end of 2013 surged 60 per cent to euro 16.7 billion. VW plans to spend euro 2 billion from it reserves, raise euro 2 billion by selling new preferred shares and issue as much as euro 3 billion in hybrid capital.
Market value
VW is offering 200 kronor per share, 36 per cent higher than yesterday's closing price of 147.50 kronor for the company's B stock. The shares have gained 7.4 per cent in the last 12 months, valuing the Swedish truckmaker at 116.8 billion kronor ($17.9 billion).
The premium VW is offering represents "a hefty price tag," Mike Tyndall, a London-based analyst at Barclays Capital, said during the analyst conference call.
Scania's 2013 operating profit rose 2 per cent to 8.46 billion kronor, the company said last month. In the first nine months of 2013, Scania's margin was 9.4 per cent, while MAN's was just 0.4 per cent. MAN has yet to release full-year results.
VW said the offer is contingent on VW gaining ownership of 90 per cent of the total shares in Scania, which it needs under Swedish law to pursue a squeeze-out. VW intends to delist Scania should it succeed with its plans, the automaker said.
Renschler appointment
Goldman Sachs Group Inc and Rothschild are VW's financial advisers on the Scania offer, according to a statement on VW's website. Roschier Advokatbyraa AB and Clifford Chance LLP are serving as legal advisers.
VW yesterday also named former Daimler AG trucks chief Andreas Renschler, 55, to succeed Oestling when he retires. Renschler, who will assume his new post next February, spent almost a decade running Daimler's truck unit, the world's biggest by revenue. His efforts included restructuring projects in the US, Japan and Brazil as well as adding production in China and India.
VW currently controls 62.6 per cent of Scania's capital via its direct holding and a stake owned by MAN. The German automaker started buying stock in the Swedish manufacturer in 2000 and acquired majority voting control in March 2008.
The automaker already has a domination agreement with MAN, which means the two can legally work more closely. That leaves Scania as the last of the three units preventing VW from fulfilling its goal of creating a heavy truck division that can better compete with global leaders Daimler and Volvo AB.
MAN Holding
Volkswagen has accumulated a 75 percent stake in MAN since 2006, when it first purchased a holding to thwart the German truckmaker's effort to take over Scania. As part of an agreement with MAN to take full control, VW is required by law to offer to buy out the German truckmaker's remaining owners. VW is facing lawsuits from dozens of MAN investors who want a higher price for their shares.
VW Chief Financial Officer Hans Dieter Poetsch said yesterday that Scania will keep its headquarter in Sweden and remain an independent brand within the group. He pointed to the success of sports-car maker Porsche, which will meet a target for 200,000 deliveries three years earlier than planned, as an example of how a marque can thrive after being bought by VW.
"If you look at Porsche, the brand developed extremely positively after the takeover," he said. "We want to improve the performance of our businesses" and not cut them down.
