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MAN SE CEO Calls VW Offer Below Market Value Appropriate


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Bloomberg / June 7, 2013

MAN Chief Executive Officer Georg Pachta-Reyhofen said an offer from Volkswagen to purchase the rest of the German truckmaker below the current market value is fair given the poor economic conditions in Europe.

“MAN SE considers the current valuation to be relevant and appropriate,” Pachta-Reyhofen said in a speech at the Munich-based company’s shareholders meeting yesterday. “The prospects for the MAN group in 2013 have been affected by the decline in economic growth expectations.”

Volkswagen gained shareholder approval at the meeting for a profit transfer and domination agreement, which eliminates the need for arm’s length negotiations between the companies and gives the carmaker access to MAN’s cash. The vote was never in doubt because VW’s voting stake of just over 75 percent gave it sufficient muscle to push through the plan.

VW, which is required under German law as part of the agreement to offer to buy out minority owners, is proposing purchasing the truckmaker’s remaining stock for 80.89 euros ($107.09) a share. Investors who don’t accept the cash deal will receive an annual dividend of 3.07 euros per share.

Ferdinand Piech, supervisory board chairman at VW and MAN, said yesterday he expects a long legal dispute with minority shareholders, who may file suits seeking a higher price for MAN’s stock.

“We’ll see each other in front of a court for a long time -- that’s what I assume,” Piech said after several lawyers, including Dusseldorf-based Peter Dreier from law firm Dreier Riedel Rechtsanwaelte, raised doubts over MAN’s valuation.

MAN shares dropped 4 cents, or 0.1 percent, to 84.17 euros as of the close of trading in Frankfurt yesterday. The stock has gained 4.2 percent this year, valuing the German manufacturer at 12.4 billion euros.

Closer cooperation is crucial to VW’s effort to jump start a stalled seven-year effort to forge Europe’s biggest truckmaker comprising MAN, Sweden’s Scania and its own commercial vehicles unit. Slumping demand for trucks in Europe, MAN’s largest sales region, and ill-fated business decisions by the truck manufacturer have added urgency to VW’s efforts.

MAN on Tuesday forecast its return on sales will fall “significantly” this year because of higher charges related to a power-plant deal, “substantial” tax risks and weaker after-sales business for its turbo and diesel unit. In the first quarter, MAN reported an operating loss of 82 million euros. Pachta-Reyhofen said yesterday he saw no reason to spin off the power engineering unit.

“The era of a proud MAN is coming to an end,” Daniela Bergdolt, a representative of the DSW shareholder organization, said in a speech. MAN’s weak results and profit warning were aimed at keeping the company’s valuation low to avoid a higher offer, she said. “You should be ashamed.”

VW has been seeking a heavy-truck alliance since buying an MAN stake in 2006, a move that thwarted MAN’s own effort to take over Scania, which VW partly owned. VW gained a controlling stake in Scania in 2008. MAN and Scania will remain separate brands, Pachta-Reyhofen said.

“VW’s approach seems to be sensitive to national/corporate identities – so I think we’re playing the long game on this,” Max Warburton, a Singapore-based analyst at Sanford C. Bernstein, said in an e-mail. “Only when they re-tool and have genuinely common chassis and engines can we expect big savings. That is still quite a few years away.”

Demand for trucks over 3.5 tons in the European Union tumbled 14 percent in the first four months of 2013, according to industry association ACEA. MAN said yesterday it sees no signs of a significant economic recovery in 2013 and will continue to reduce costs in production, sales, administration and development. The company may also reduce work hours at plants in the second half because of the weak market, the CEO said.

“The market environment in Europe is difficult and will remain difficult in 2013,” Bernd Heid, a Cologne, Germany-based partner at McKinsey & Co, said in a telephone interview. “We anticipate a recovery in 2014 at the earliest.”

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