Feb. 20 (Bloomberg) -- Volvo AB, the world's second-largest truckmaker, agreed to buy Nissan Diesel Motor Co. for 7.5 billion kronor ($1.1 billion) to gain a regional brand name and add production in Asia, the world's fastest-growing economic area.

Shareholders in Nissan Diesel, Japan's fourth-largest truckmaker, will receive 540 yen a share, Gothenburg, Sweden-based Volvo said in a statement today. That's 22 percent higher than yesterday's closing price on the Tokyo Stock Exchange. Volvo already owns 19 percent of Nissan Diesel.

The maker of Volvo, Mack and Renault brand trucks follows DaimlerChrysler AG, the world's largest truckmaker, in buying a Japanese manufacturer to increase production in the region. Volvo last year sold 7 percent of its trucks in Asia. Nissan Diesel also offers technology that can reduce engine emissions as countries tighten pollution standards.

``Asia has been a weak spot for Volvo,'' said Ichiro Takamatsu, a chief investment officer at Alphex Investments Co., a Tokyo-based hedge fund. ``Volvo gains a channel to expand in Asia by acquiring Nissan Diesel.''

Shares of Volvo gained 8 kronor, or 1.5 percent, to 557 kronor in Stockholm. Nissan Diesel stock rose 18.1 percent to close at 523 yen on the Tokyo Stock Exchange.

``I believe that the merger is the best alternative for Nissan Diesel's future,'' Nissan Diesel President Iwao Nakamura said in today's statement.

Vehicle Development

Jorma Halonen, Volvo's deputy chief executive, said at a Tokyo press conference that acquiring Nissan Diesel was ``very important'' to developing new vehicles that emit fewer pollutants, as tougher emission standards are introduced in Europe, Japan and North America between 2009 and 2013.

Volvo is paying 13 to 14 times net income for Nissan Diesel shares, according to Henrik Breum, an analyst with Danske Equities in Copenhagen, who has a ``buy'' rating on the stock. The industry average in 2007 is 13.2 times earnings, he said.

``I don't think this will have a significant diluting affect in terms of the Volvo shares,'' Breum said.

Credit-default swaps based on 10 million euros of Volvo debt were unchanged at 23,500 euros, according to JPMorgan Chase & Co. Credit-default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt. A decrease indicates an improvement in credit quality.

The Swedish truckmaker, 20 percent owned by Renault SA, bought a 13 percent stake in Nissan Diesel from Tokyo-based Nissan Motor Co. in March of last year for 1.5 billion Swedish kronor. Volvo boosted its stake to 19 percent in September. Volvo plans to complete the buyout by the end of March.

Combined Profit

Nissan Diesel and Volvo estimated in November that their alliance would boost combined profit by 200 million euros ($263 million) a year within five years. The companies also agreed to share sales networks in Japan, China and North America and develop engines together. Nissan Diesel said it expects to reduce purchasing costs, which total about 180 billion yen a year, by as much as 20 percent by jointly buying parts with Volvo.

The companies will share a chassis for heavy-duty trucks and co-develop a new medium-duty truck. They will also jointly develop diesel-electric hybrid technology and study using alternative fuels including ethanol. Nissan Diesel will use Volvo's auto financing service in North America and other overseas markets.

DaimlerChrysler took control of Mitsubishi Fuso Truck & Bus Corp. from its former parent Mitsubishi Motors Corp., paying 141 billion yen ($1.2 billion) for a 65 percent stake in 2003 and 2004. It gained another 20 percent in 2005.

Asian Acquisitions

Volvo Chief Executive Officer Leif Johansson has said he's focusing on Asian acquisitions for the truckmaking division, in part, because the company is too large in Europe and the U.S. to get regulatory approval for purchases.

Volvo last year sold 47 percent of its trucks in Europe and 43 percent in the Americas. The company develops and produces trucks in Sweden, Belgium, Brazil and the U.S., and has Asian assembly plants in Saudi Arabia, India, Iran, Taiwan, Malaysia, China and Thailand. The European Union blocked Volvo's effort in 1999 to buy Swedish rival Scania AB.

The purchase comes as European truckmakers, flush with profit because of rapid expansion in eastern Europe, are paying shareholders special dividends and seeking acquisitions. MAN AG, Europe's third-largest truckmaker, last September launched a failed takeover of Scania. Volvo, Scania and MAN all boosted their 2006 payments to shareholders as they posted record profit.

Chinese Market

Truckmakers are targeting China, the world's second-largest auto market, where economic growth is projected to boost commercial vehicle purchases. Sales of buses and trucks rose 14 percent in China last year to 2.04 million vehicles. Economic growth of about 9 percent a year for the past decade will likely cause commercial vehicle sales to expand at least 10 percent a year over the long term, according to an estimate by KPMG LLP.

Nissan Diesel is the only one among four Japanese truckmakers that has a production site and sales network in China, according to the company. The company partners with Dongfeng Motor Group Co., China's third-largest automaker.

Volvo aims to raise its Asian market share for heavy-duty trucks, including those made by Dongfeng, to between 20 and 25 percent from between 5 and 10 percent now, Halonen said.

Volvo will assume Nissan Diesel's net interest-bearing debt of about 7.5 billion Swedish kronor. Mizuho Securities Co. is advising Nissan Diesel on the buyout, and Mitsubishi UFJ Securities Co. is advising Volvo.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Chad Thomas in Berlin at cthomas16@bloomberg.net.

Last Updated: February 20, 2007 11:46 EST