Scania, MAN SE Explore Combination to Take on Mercedes

Scania AB, the Swedish truckmaker controlled by Volkswagen AG (VOW), said it’s considering a merger with MAN SE (MAN) of Germany to create Europe’s largest manufacturer of commercial vehicles.

“For some time Scania and MAN have investigated different projects in the industrial area,” Scania said today. “A full realization of potential synergies requires a closer cooperation by combining the two companies, while maintaining the unique brand values of the respective companies.”

MAN rose to the highest price in 2 ½ years in Frankfurt. A merged Scania and MAN would overtake Volvo AB (VOLVB) and Daimler AG (DAI) as the largest maker of heavy trucks and buses in Europe. VW Chief Executive Officer Martin Winterkorn this year appointed production chief Jochem Heizmann to oversee the truck holdings and to forge ties between Scania and MAN. Europe’s largest carmaker owns 46 percent of Scania and 29.9 percent of MAN.

“VW’s aim is to control this truck group, exploit synergies and the economies of scale that are very important in this industry,” said Daniel Schwarz, an analyst at Commerzbank AG in Frankfurt. “It’s the one scenario that makes most sense from VW’s point of view.”

Market Value

MAN, based in Munich, jumped 5.10 euros, or 6.2 percent, to 87.55 euros, steepest increase since Sept. 24 and the highest level since June 2008. The truckmaker, which reported 2009 sales of 12 billion euros ($16.3 billion), has a market value of 12.7 billion euros.

Scania added 2 kronor, or 1.4 percent, to 148 kronor in Stockholm, giving the Soedertaelje, Sweden-based company a market value of 118 billion kronor ($17 billion). Volkswagen’s preferred shares rose 2.3 percent to 116.60 euros. MAN has risen 61 percent this year and Scania has gained 60 percent.

Volkswagen, which owns 46 percent of Scania’s capital and 71 percent of the voting rights, wants to increase the holding by transferring its stake in MAN to Scania, German weekly magazine Der Spiegel reported. Scania may then offer to buy out other MAN investors, Der Spiegel said. MAN has a 13.4 percent holding in Scania.

No decisions have been taken on a potential combination of the companies, Scania said in its statement.

No Decision

In a separate release, MAN said that at “this early stage of the discussions, the outcome is still open and no decisions have been taken.” MAN’s statement only referred to “industrial cooperation” with Scania, calling a possible combination of MAN and Scania “speculation.”

“We support these talks,” Michael Brendel, a Wolfsburg, Germany-based spokesman for Volkswagen, said by telephone, referring to MAN’s statement.

The most likely scenario for a combination would be a purchase of MAN by Scania, said Commerzbank’s Schwarz. The Swedish truckmaker may pay for the stake with the help of a sale of new Class B shares, which grant 10th of the voting rights of its Class A shares, according to the bank. That would limit the dilution of VW’s control in Scania and the resulting group, Schwarz said.

Scania had 767 million euros in cash and cash equivalents as of Sept. 30, according to its quarterly report. MAN had 1 billion euros of cash reserves, and VW held 22 billion euros. VW also aims to complete a merger with Porsche SE next year.

Hostile Bid

MAN made a hostile bid for Scania in September 2006 and was forced to withdraw the 10.3 billion-euro offer in January 2007 following opposition from Volkswagen and Investor AB, Scania’s second-largest shareholder at the time. Investor sold its Scania stake to VW in 2008.

Scania and MAN have a combined nine-month share of Europe’s heavy-truck and bus market of 29 percent, according to the Brussels-based European Automobile Manufacturers’ Association. Daimler has 21 percent and Volvo, including its Renault trucks unit, has 23 percent.

Globally, MAN and Scania together sold more than 84,000 trucks and buses in the first nine months. Their combination would create a manufacturer with a 5.9 percent market share, surpassing Volvo’s 5 percent but still trailing Daimler’s 11 percent, according to 2009 figures supplied by Stuttgart, Germany-based Daimler, the world’s largest truckmaker.

Volvo forecast last month that the heavy-truck market will grow 10 percent in 2010 in Europe and between 20 and 30 percent in North America, or deliveries of about 180,400 trucks in Europe and as many as 153,400 in North America. Sales will top 200,000 vehicles in each region next year, Volvo said Oct. 22.

Global Sales

Worldwide truck sales may jump by more than half to about 3 million vehicles by 2015, Andreas Renschler, head of Daimler Trucks, predicted in September.

Daimler CEO Dieter Zetsche said on Sept. 30 that he may consider acquisitions in the commercial-vehicle segment, after Fiat SpA (F) CEO Sergio Marchionne said that he’s open to a possible partnership for the truck and tractor business that is being spun off by the Italian carmaker. Daimler isn’t in talks with Fiat about the Iveco truck unit, Zetsche said at the time.

“That Scania and MAN will tighten their cooperation is logical since Volkswagen owns both companies,” said Carl Holmquist, an analyst at Danske Markets Equities who has a “hold” rating on Scania. “The question now is, what will happen concretely with the ownership situation among these three companies?”

‘Running the Show’

MAN must be allowed to keep its mainstay commercial vehicles and diesel and turbo businesses, IG Metall union’s Juergen Wechsler said late yesterday after discussions with worker representatives who are on MAN’s supervisory board.

Scania and MAN said in July that they were studying whether to work together on hybrid components research as well as to share gearboxes and axles. Scania CEO Leif Oestling said Oct. 25 that “we need a number of months more before we can say exactly where and how” it will turn out.

“I guess he, like everyone else, just have to accept the situation,” said Hakan Thurfjell, a Scania board member who represents the Federation of Salaried Employees in Industry and Services. “Volkswagen is running the show.”

To contact the reporters on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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