Scania Owners Express Doubts Over VW’s $9.2 Billion Bid

[kscarbel2]

Bloomberg / February 23, 2014

Scania minority owners expressed doubts about backing Volkswagen’s 6.7 billion-euro ($9.2 billion) bid for the rest of the truckmaker, with some suggesting the offer may be too low and others saying the Swedish company should retain its relative independence.

“Scania’s prerequisites to maintain its leading position are better as a listed company than as a subsidiary in a larger group,” Caroline af Ugglas, head of equities and ownership at pension provider Skandia, said in an e-mailed response. “Skandia doesn’t intend to accept the offer.”

VW only plans to pursue the bid if it can secure 90 percent of the shares in Scania, which the German automaker needs under Swedish law to pursue a squeeze-out and delist the Soedertaelje-based company. VW, Europe’s largest automaker, currently controls 62.6 percent of the share capital.

VW’s goal is to deepen cooperation between Scania, its own commercial vehicles unit and MAN, which it also controls, in areas such as drivetrains, chassis, cabins and electronics. Such moves have faced resistance from Scania’s minority holders who argue doing so is a disadvantage for the manufacturer, which is more profitable than MAN.

VW is offering 200 kronor per share, 36 percent higher than the Feb. 21 closing price of 147.50 kronor for the company’s B stock. The shares have gained 7.4 percent in the last 12 months, valuing the Swedish truckmaker at 116.8 billion kronor ($17.9 billion).

“This must be evaluated in light of the duty we have for our pensioners and it is not obvious that that is the stock market price plus a few percent,” said Mats A. Andersson, head of the AP4 pension fund, which owns Scania shares. “We must now take a look at the offer and consider it and make an evaluation based on what a long-term owner finds is good.”

Profit Boost

By more closely integrating its truck operations, VW said yesterday that it can eventually achieve annual operating profit synergies of 650 million euros. To get there, VW needs to buy out Scania’s other investors, some of whom this month asked for an independent auditor to examine whether ownership of the company by VW and MAN poses a conflict of interest.

“There is a lot of frustration regarding how VW has treated their minority shareholders,” Carl Rosen, head of the Swedish Shareholders’ Association, said in an interview after VW announced the bid. “We think it is positive that they make this offer.”

Investors have objected to Scania’s plan to cut its dividend and the abolition of a board-nominating committee. The board of directors proposed last month reducing the dividend by 16 percent to 4 kronor a share from 4.75 kronor.

Operating Margin

Scania’s 2013 operating profit rose 2 percent to 8.46 billion kronor. In the first nine months of 2013, Scania’s profit margin was 9.4 percent, while MAN’s was just 0.4 percent. MAN has yet to release full-year results.

“Alecta will evaluate the bid carefully, from all aspects,” Johan Andersson, a spokesman for the occupational pension company that is Scania’s fifth-largest shareholder with 2 percent of the capital, said in an e-mailed response.

Goldman Sachs Group Inc. and Rothschild are VW’s financial advisers on the Scania offer, according to a statement on VW’s website. Roschier Advokatbyraa AB and Clifford Chance LLP are serving as legal advisers.

VW currently controls 62.6 percent of Scania’s share 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.

MAN Holding

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 and Volvo.

VW 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 is proposing purchasing the truckmaker’s remaining stock for 80.89 euros a share. The stock closed Feb. 21 at 93.35 euros. Investors who don’t accept the cash will receive an annual dividend of 3.07 euros per share.

VW Chief Financial Officer Hans Dieter Poetsch said Feb. 21 that Scania will keep its headquarter in Sweden and remain an independent brand within the group. Poetsch pointed to the success of sports-car maker Porsche, which will meet a target for 200,000 deliveries three years earlier than planned, as an example of how a marque can thrive after being bought by VW.

“If you look at Porsche, the brand developed extremely positively after the takeover,” he said. “We want to improve the performance of our businesses” and not cut them down.

[dagotwit]

kscarbel2,

You mentioned in another thread about some of the differences in philosophy between MAN and Scania. I am interested in hearing what they are. Also, why has MAN never tried to enter the North American market?

Thanks.

[mackdaddy]

doesn't IH/Navistar have an agreement with MAN?

[kscarbel2]

doesn't IH/Navistar have an agreement with MAN?

Please allow me to answer your question and expand upon it.

As the year 2000 approached, Navistar wanted to have an exclusive engine for its heavy trucks, which certainly wasn’t a bad idea.

Navistar and Cummins were discussing a 13-liter engine concept named the Dakota. Navistar would get the engine exclusively for a few years before it would become available to all truckmakers. However the talks came to an end in May 2001.

Navistar then switched gears and announced later that same month they were negotiating a long-term supply agreement with Volvo for 12-13 liter engines.

However just seven months later in December, Volvo broke off the talks saying that Navistar had failed to meet the terms of their agreement.

Of course during this period, Navistar continued to purchase engines from Caterpillar, Cummins and Detroit Diesel.

Fast forward to December 2004, Navistar signed an agreement with Germany’s MAN that would allow the U.S. truckmaker to produce MAN D20 and D26 engines for the U.S. market under license. You know them as the MaxxForce 11 and 13.

In May 2005, Navistar purchased Brazilian diesel engine manufacturer MWM*. Navistar spent US$45 million expanding the MWM plant to facilitate production of MAN D20 and D26 engine blocks. MWM could produce the compacted-graphite iron** (CGI) blocks more cheaply than could be done in the United States.

The blocks are cast at Tupy S.A., a Brazilian foundry in Sao Paulo, and then shipped to MWM’s Santo Amaro plant (also in Sao Paulo) for machining before heading to Navistar’s modern big-block engine plant in Huntsville, Alabama.

Running 24/7, the MWM line can produce 36,000 MaxxForce 11 and 13 blocks annually.

The MAN (MaxxForce) engines have been unfairly criticized. The Man D20 and D26 are proven high-performance engines, operating trouble-free around the globe.

I’d also like to point out that MAN (and Scania) for Euro-5 (EPA2007) offered both EGR and SCR engines. Owing to different customer preferences, they gave their customers a choice. The Euro-5 EGR engines operated with high performance and reliability.

However for Euro-6 (EPA2010), the Germans at MAN switched to SCR because they realized that EGR technology (at this moment) was unable to meet Euro-6 (EPA2010) with acceptable performance and reliability.

But former Navistar CEO Dan Ustian arrogantly decided to ignore MAN’s advice to use SCR for EPA2010. Ustian and his whiz kids (e.g. Helmut Endres, Michael Cerilli, Ramin Younessi) all believed they could do what the Germans couldn’t. The rest is history. They spent a lot of money but failed to advance the limits of today’s EGR technology and create a durable and high-performing EPA2010 EGR engine. Admirable intentions, but Ustian should have realized two plus years earlier it was time to give up on Plan A (EGR) and switch to a Plan B (i.e. SCR).

*MWM was founded in Brazil in1953 by Germany’s MWM gmbH (Motoren-Werke Mannheim – which was acquired by CAT in 2010) and Knorr-Bremse. MWM was purchased by Klöckner-Humboldt-Deutz AG (KHD) in 1985, and sold to Navistar International in 2005.

http://www.nav-international.com.br/site.aspx/Home-En

** CGI has revolutionized the auto and truck industry. CGI engine blocks and cylinder heads provide 75 percent greater tensile strength, 45% greater stiffness and double the fatigue strength of conventional grey cast iron and aluminum. CGI allows engine designers to improve performance, fuel economy and durability while reducing engine weight, noise and emissions. CGI users now include Aston Martin, Audi, Caterpillar, Chrysler, DAF Trucks, Ford, General Electric Transportation Systems, General Motors, Hyundai, Jaguar, Jeep, Kia, Land Rover, MAN, Navistar, Porsche, PSA Peugeot-Citroën, Renault, Rolls-Royce, Scania, Toyota, Volkswagen, Volvo, VM Motori and Waukesha Engine.

[kscarbel2]

kscarbel2,

You mentioned in another thread about some of the differences in philosophy between MAN and Scania. I am interested in hearing what they are. Also, why has MAN never tried to enter the North American market?

Thanks.

When Americans think of (Western) Europe, you imagine many small countries close together. You imagine a meshing of cultures. But that couldn't be further from the truth. The Germans, French, Swedes, ect. each have their own very unique cultural ways, and there's visible resentment for each other. Owing to our history, America is a country of people orignating from the world over. Europe isn't. The U.S. is extremely multi-cultural compared to the "old countries".

At America's Cummins operations worldwide, you'll see employees from all over the world, owing to our country's diversity. However at the German truckmakers, you'll rarely see a nationality other than Germans, and the same goes for the Swedish truckmakers.

Business in Europe is conducted much more aggressively than the US. The Swedes (Scania and Volvo) have an intense rivalry with each other first of all, and then with the Germans (Daimler and MAN) and the Italians (Iveco).

It's no surprise that the U.S. concept and culture of heavy truck engineering is dramatically different from the European truckmakers, and again so different from the Japanese truckmakers. But it's just as true that the company culture, that catalyst for innovation, is tremendously different between Swedish and German truckmakers.

The truckmaking unit of MAN isn't thrilled about having Volkswagen as a majority stake-holding master. But at least they're both German. Scania is a fiercely proud Swedish truckmaker. No Swede wants to be under the control of Germans. The very thought of Scania becoming a VW subsidiary has the country in an uproar.

The catalyst for Scania's never-ending cutting edge heavy truck innovations has been its position as an independent truckmaker. The workforce at Scania is known for its deep passsion and enthusiasm, no different than the Mack family years ago.

The Germans at VW have no more passion for Scania than Volvo had for the former Mack Trucks. VW will gut the company as Volvo has Mack. The business world is a cold and calculated place (particularly with Europeans), which is why governments at select moments need to step in as a matter of national interest. In the case of Mack Trucks, that did not occur.

Why did MAN never enter the US market? In the 1970s, MAN observed Mercedes-Benz fail in the US truck market. Also, unlike Scania with its T-Series, MAN did not have any conventional truck models to send over.

MAN did enter the US marine engine business. Like Scania's marine and industrial engines, they are quite good. http://www.man-mec.com/en/index.html

[dagotwit]

When Americans think of (Western) Europe, you imagine many small countries close together. You imagine a meshing of cultures. But that couldn't be further from the truth. The Germans, French, Swedes, ect. each have their own very unique cultural ways, and there's visible resentment for each other. Owing to our history, America is a country of people orignating from the world over. Europe isn't. The U.S. is extremely multi-cultural compared to the "old countries".

I should have realized this, having Southern Italian parents.

At America's Cummins operations worldwide, you'll see employees from all over the world, owing to our country's diversity. However at the German truckmakers, you'll rarely see a nationality other than Germans, and the same goes for the Swedish truckmakers.

It would appear that IVECO has managed to successfully combine Italian, German, Spanish, and British companies. The real test is how many non-Italians make it into senior management.

[dagotwit]

cont'd

Business in Europe is conducted much more aggressively than the US. The Swedes (Scania and Volvo) have an intense rivalry with each other first of all, and then with the Germans (Daimler and MAN) and the Italians (Iveco).

Very true. I was was told that Booz & Company did a management study of European and American businesses, as well as the US military for comparison. The Europeans were the most aggressive in removing poorly performing managers, the US military the least.

It's no surprise that the U.S. concept and culture of heavy truck engineering is dramatically different from the European truckmakers, and again so different from the Japanese truckmakers. But it's just as true that the company culture, that catalyst for innovation, is tremendously different between Swedish and German truckmakers.

IEEE Spectrum magazine has an interesting article comparing engineers from various European countries and how they approached their work. My favorite was the comparison between Spanish and British engineers. The Spanish engineers worked late, did very good work, and stayed until the job was done. The British engineers worked hard, and at 5:00 pm immediately stopped working and asked for directions to the nearest pub.

Edited February 27, 2014 by dagotwit

[dagotwit]

cont'd Part II

The truckmaking unit of MAN isn't thrilled about having Volkswagen as a majority stake-holding master. But at least they're both German. Scania is a fiercely proud Swedish truckmaker. No Swede wants to be under the control of Germans. The very thought of Scania becoming a VW subsidiary has the country in an uproar.

The catalyst for Scania's never-ending cutting edge heavy truck innovations has been its position as an independent truckmaker. The workforce at Scania is known for its deep passsion and enthusiasm, no different than the Mack family years ago.

The Germans at VW have no more passion for Scania than Volvo had for the former Mack Trucks. VW will gut the company as Volvo has Mack. The business world is a cold and calculated place (particularly with Europeans), which is why governments at select moments need to step in as a matter of national interest. In the case of Mack Trucks, that did not occur.

Any chance of the Swedish government forcing a merger with Volvo?

Why did MAN never enter the US market? In the 1970s, MAN observed Mercedes-Benz fail in the US truck market. Also, unlike Scania with its T-Series, MAN did not have any conventional truck models to send over.

MAN did enter the US marine engine business. Like Scania's marine and industrial engines, they are quite good. http://www.man-mec.com/en/index.html

I guess they could still buy Navistar.

Thank you as always. Your posts are the type of education I enjoy.