Volkswagen AG, Europe’s biggest carmaker, sold 2 billion euros ($2.7 billion) in preferred stock to fund the takeover of Swedish truckmaker Scania AB.
Institutional investors bought 10.5 million shares at 191 euros a share, a discount of 2.4 percent to yesterday’s closing price, the Wolfsburg, Germany-based company said today.
The sale is part of a broader funding package to cover the 6.7 billion euros needed to buy full control of Scania and deepen a three-way alliance between the Soedertaelje-based company, VW’s own commercial-vehicle unit and Munich-based MAN SE, which VW also controls. The purchase caps an effort that began in 2006 to create a global truck division that can compete with leaders Daimler AG and Volvo AB. The combined businesses will overtake Daimler and Volvo as Europe’s biggest truck producer.
“The placement seems to have gone smoothly and the dilution is rather small,” Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler, said by phone. “You can argue about whether or not this capital increase was really necessary as VW could have financed the transaction without it.” VW stuck to the policy of protecting its credit rating, he said.
Volkswagen dropped as much as 2 percent, the steepest intraday decline since May 2, and was trading down 1.4 percent at 192.95 euros as of 10:16 a.m. in Frankfurt. The stock has declined 5.5 percent this year, valuing the German manufacturer at 89 billion euros.
VW controlled 62.6 percent of Scania when it made the bid for a full takeover in February. The figure exceeded 98 percent as of May 30 and the truckmaker’s last day of trading will be tomorrow. VW is also also financing the acquisition through hybrid capital worth 3 billion euros and spending 2 billion euros from reserves. VW’s net liquidity at the end of March totaled 17.7 billion euros.
VW has thus far reaped limited financial rewards for the billions of euros invested in purchasing majority stakes in Scania and MAN as minority investors resisted efforts to share technology that would boost combined profit. VW already has a domination agreement with MAN, which means the two can legally work more closely. That left Scania as the last unit preventing VW from creating an integrated heavy-truck division.
The German manufacturer has achieved only 200 million euros in savings from joint work among the VW van and truck unit, Scania and MAN. VW’s goal is to deepen cooperation among the three businesses in areas such as drivetrains, chassis, cabins and electronics to reach annual operating-profit synergies of 650 million euros.
Volkswagen also plans to issue about 800 million yuan ($128 million) of asset-backed securities in China as soon as this month, following similar sales by Ford Motor Co. and Toyota Motor Corp., a person familiar with the matter said. China International Capital Corp. will be the VW sale’s lead manager, the person said, asking not to be identified because the details are private.
The securitized notes, due August 2020, are backed by automotive loan receivables originated by Volkswagen Financial (China) Co., a unit of the carmaker’s banking division, Fitch Ratings Ltd. said yesterday.
The new preferred shares will carry full dividend rights for 2014. Bank of America Corp., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the sale.
“This removes the share overhang and we believe VW will outperform the sector from here on in,” Daniel Schwarz, a Commerbank AG analyst in Frankfurt, said in a note to clients today. “Earnings momentum should now accelerate.”