Volkswagen AG (VOW) is bidding 6.7 billion euros ($9.2 billion) for the rest of Scania AB (SCVA) to restart a stalled plan to create a global heavy trucks unit that can compete with industry leaders Daimler AG and Volvo AB. (VOLVB)
The Wolfsburg, Germany-based manufacturer thus far has reaped limited financial rewards for the billions invested in the last decade to purchase controlling stakes in the Swedish company and German truckmaker MAN SE (MAN) as minority investors resisted efforts to share technology that would boost profit.
VW values the two truck brands at a combined 29.3 billion euros, based on offers to Scania and MAN shareholders. VW, which owns 75 percent of MAN, is also trying to buy out the remaining owners, who have filed lawsuits seeking a higher price. The two contributed 738 million euros to VW’s nine-month operating profit. That’s less than half the 1.89 billion euros generated by Porsche, which VW bought in a 2012 transaction valuing the sports-car marque at 12.4 billion euros.
“It’s incomprehensible that they haven’t been able to enforce cooperation at Scania despite all the investments in the trucks operations so far,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. “It was a mistake to keep Scania on a very long leash.”
VW is offering 200 kronor ($30.73) per share, 36 percent above Friday’s closing price of 147.50 kronor for the company’s B stock. VW’s bid values Scania at 17.9 billion euros, equivalent to 26 times estimated 2014 earnings and 18 times Scania’s peak historic earnings, according to Heenal Patel, a London-based analyst at Bloomberg Industries.
VW plans to sell new preferred shares to raise 2 billion euros, issue hybrid capital worth as much as 3 billion euros and spend 2 billion from reserves to pay for the purchase. The German manufacturer’s net liquidity at the end of 2013 was 16.7 billion euros.
Scania and MAN both make heavy trucks, while VW’s commercial-vehicles business produces delivery vans and the Amarok pickup. The combination of MAN and Scania would be bigger than Volvo, currently the second-largest global truckmaker. The two VW units’ nine-month deliveries totaled 154,000, compared with 139,000 for Volvo. Daimler sold 350,000 trucks over that period. The three manufacturers would vie for the lead in the European truck market.
Daimler expects demand for medium- and heavy-duty vehicles in the region to decline “slightly” this year after a change in emissions regulation led to a surge in buying at the end of 2013. In Western Europe, MAN and Scania control 27.4 percent of the market, compared with 22.9 percent for Daimler and 22 percent for Volvo, according to data from Daimler for 2012.
The European heavy-truck market has suffered from the region’s sovereign-debt crisis as the stumbling economy sapped demand. Industrywide sales last year of 240,000 vehicles were 25 percent below the 2007 level.
VW has only achieved 200 million euros in purchasing savings from Scania, its own commercial-vehicles unit and MAN. VW’s goal is to deepen cooperation between the three in areas such as drivetrains, chassis, cabins and electronics to reach annual operating profit synergies of 650 million euros. Given that developing new heavy trucks takes years, the automaker doesn’t expect to reach that goal for at least a decade.
“There’s been no progress on the trucks business so far, while the money is earned with Audi and Porsche,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “Different investments would have been better,” as the lack of returns from MAN and Scania “shows the limits” of VW’s strategy.
Scania’s minority investors have thus far not bought into VW’s integration plan. Some this month instead asked for an independent auditor to examine whether ownership of the company by VW and MAN poses a conflict of interest. They oppose the elimination of a board-nominating committee and a 16 percent cut in the dividend for 2013 to 4 kronor per share.
“Scania’s prerequisites to maintain its leading position are better as a listed company than as a subsidiary in a larger group,” said Caroline af Ugglas, head of equities and ownership at pension provider Skandia, which owns 0.88 percent of Scania. “Skandia doesn’t intend to accept the offer.”
VW’s effort in the last decade to add heavy trucks bucks the trend in the automotive industry, as manufacturers increasingly focused on either cars or commercial vehicles. Fiat SpA (F) spun off its truck and tractor affiliate -- now known as CNH Industrial NV (CNHI) -- in 2011. Renault SA (RNO) sold its remaining shares in Volvo AB in 2012, a remnant of a 2001 deal to unload its heavy-trucks unit to the Swedish company, which in turn sold its car operations in 1999.
Volvo’s deal to buy Renault trucks is indicative of the consolidation that’s been ongoing in the commercial-vehicles industry in recent years. Volvo also produces Mack trucks in the U.S. and UD vehicles in Japan. Daimler makes Mercedes-Benz trucks in Europe, Freightliner vehicles in North America and Fuso trucks in Asia. That trend could have put Scania’s future as a stand-alone manufacturer in question over the long run.
“It would be very difficult for a company of Scania’s size to succeed on its own for the long term,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “Scania needs expand internationally more aggressively, and that’s something they can do better as part of VW.”
VW only plans to pursue the bid if it can secure 90 percent of Scania, which is the threshold needed under Swedish law to force the remaining owners to sell their holdings and delist the company. Scania’s board said yesterday that a committee independent of the VW members will evaluate the bid and make a recommendation on the offer at a later date.
VW currently controls 62.6 percent of Scania via a 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 2008. VW already won permission from European Union regulators at that time to buy the controlling stake, with the EU saying that it had no antitrust concerns because the companies weren’t direct rivals.
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 more integrated heavy truck division. While some Scania investors have come out against the bid, others are backing it.
“Nordea believes that the offer is attractive from the perspective of our investors,” Mathias Leijon, head of Fundamental Equity at Nordea Bank AB (NDA), said in an e-mail to Bloomberg. “Therefore, we intend to accept the offer.”
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