VW offers $9.2 billion to purchase rest of truckmaker Scania

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Bloomberg / February 21, 2014

FRANKFURT -- Volkswagen AG is bidding 6.7 billion euros ($9.2 billion) for the rest of truckmaker Scania AB to deepen cooperation with its other commercial-vehicles units after being blocked previously in those efforts by the Swedish company's minority shareholders.

VW, which already controls a majority of Scania's capital and 89.2 percent of the voting rights, is offering 200 kronor ($30.6) per share, 36 percent higher than today's closing price of 147.50 kronor for the company's B stock.

VW is looking to jump start a stalled seven-year effort to more closely align Scania, its own commercial-vehicles business and Munich-based truckmaker MAN SE, which VW also controls. VW will target annual operating profit synergies of 650 million euros from joint projects between the three. VW has faced resistance from Scania's other investors, who this month asked for an independent auditor to examine whether ownership of the company by VW and MAN poses a conflict of interest.

"It definitely makes sense to invest this money to remove the last hurdles for closer cooperation and reap the planned cost synergies," said Frank Schwope, a Hanover, Germany-based analyst with NordLB.

VW has the financial leeway to pay for the transaction. The company's net liquidity at the end of 2013 surged 60 percent to 16.7 billion euros after raising 3.7 billion euros selling bonds convertible to preferred shares. VW plans to raise an additional 2 billion euros in funding by selling new preferred shares as well as issuing hybrid capital.

Squeeze-out

Scania's shares have climbed 7.4 percent in the last 12 months, valuing the Swedish truckmaker at 116.8 billion kronor. VW said the offer is contingent on VW gaining ownership of 90 percent of the total shares in Scania, which it needs under Swedish law to pursue a squeeze-out. VW intends to delist Scania should it succeed with its plans, the automaker said.

"Scania is a core element of the integrated commercial vehicles group that we intend to accomplish under the umbrella of the Volkswagen group," CEO Martin Winterkorn said in a statement. "Our offer is designed to create a sustainable and clear ownership structure for Scania."

VW today said it hired former Daimler AG trucks chief Andreas Renschler, tasking him with deepening integration after taking over from current commercial-vehicles boss Leif Oestling, 68, when he retires next year. Renschler will assume his new post on Feb. 1, 2015.

Global competition

VW controls 62.6 percent of Scania's capital via its 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 March 2008.

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 heavy truck division that can better compete with global leaders Daimler AG and Volvo AB.

The 650 million euros in improved annual operating profit will take as long as 15 years to achieve because of the lengthy development cycles in the commercial vehicles industry and will come on top of 200 million euros in yearly savings to be achieved by the end of 2014, VW said.

"The plan to fully integrate Scania into the Volkswagen group follows a compelling industrial logic," said Oestling, who previously was Scania's CEO. "It will significantly improve the capabilities, efficiency and flexibility of the commercial vehicles group."

Profit gain

Volkswagen has accumulated a 75 percent stake in MAN since 2006, when it first purchased a holding to thwart the German truckmaker's effort to take over Scania. As part of an agreement with MAN to take full control, VW is required by law to offer to buy out the German truckmaker's remaining owners. VW is facing lawsuits from dozens of MAN investors who want a higher price for their shares.

VW today reported a 1.5 percent gain in profit last year as record sales at its luxury Audi and Porsche brands offset spending on developing new models and expanding production. Earnings before interest and taxes rose to 11.7 billion euros from 11.5 billion euros in 2012, and matching the average of 21 analyst estimates compiled by Bloomberg.

The maker of VW, Skoda and Bentley vehicles forecast its operating margin in 2014 to be in a range from 5.5 percent to 6.5 percent. The compares to 5.9 percent last year. Revenue is expected to "move within a range of 3 percent" from 2013.

Scania's 2013 operating profit rose 2 percent to 8.46 billion kronor, the company said on Jan. 29. The board of directors proposed reducing the dividend to 4 kronor a share from 4.75 kronor.