VW Blocks Suzuki’s Efforts to Force End to Stalled Partnership

Volkswagen AG (VOW) rejected efforts by Suzuki Motor Corp. (7269) to force an end to a two-year-old partnership that hasn’t yielded a single project.

Suzuki said today that it terminated the cooperation agreement and demanded that VW sell back its 19.9 percent stake in the Japanese manufacturer, threatening to take the dispute to an international court for arbitration. Wolfsburg, Germany-based Volkswagen called the actions “without foundation,” reaffirming plans to retain the holding.

“The glass is broken,” said Arndt Ellinghorst, a London- based analyst with Credit Suisse. “I don’t see any reason why VW should not sell its stake back to Suzuki” as there seems little chance of repairing the relationship.

The two companies have been at odds since VW described Suzuki as an “associate” in its 2010 annual report, published in March. Relations took a turn for the worse after Chairman Osamu Suzuki accused VW of disparaging the Hamamatsu, Japan- based company’s honor by alleging it had violated the 2009 contract by buying engines from Fiat SpA.

Suzuki’s shares fell 2.7 percent to 1,565 yen at the close of trading in Tokyo, compared with a 1.2 percent drop in the benchmark Nikkei 225 Stock Average. VW declined as much as 1.2 percent to 123.15 euros and was down 1 percent at 11:41 a.m. in Frankfurt trading.

Each company has accused the other of breaching their cooperation agreement, which was meant to supply Suzuki with technology and provide VW with access to the Indian car market. VW’s move to back off calling Suzuki an “associate” on Oct. 27 hasn’t quelled the feud.

Drive for Independence

“In the absence of VW’s cooperation and given its failure to do what was agreed, there is no basis for the partnership to continue,” Chairman Suzuki said today. “We will now work to restore the relationship between Suzuki and VW to its original state as independent parties who do not restrict each other.”

Suzuki, which owns 1.49 percent of VW, last month accused VW of violating a partnership agreement by not sharing technology and sent a letter to VW asking it to remedy “numerous” breaches of an agreement. VW hasn’t agreed to its requests, Suzuki said in today’s statement.

VW responded saying Suzuki’s claims that it didn’t provide access to technology were “factually incorrect” and that it fulfilled its commitments under the agreement.

‘No Foundation’

“We are extremely disappointed that Suzuki has taken this step” to terminate the agreement, the German automaker said in an e-mailed statement. “There is no legal foundation whatsoever obliging us to surrender our shares. Volkswagen will continue to hold its stake.”

The Japanese automaker will give VW “some time” before beginning arbitration outside of Japan and Germany on the shareholdings, Executive Vice President Yasuhito Harayama said at a press briefing in Tokyo today.

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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