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VW Secures Enough Scania Stock for Takeover to Succeed


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Bloomberg / May 13, 2014

Volkswagen AG secured enough backing to move forward with a 6.7 billion-euro ($9.2 billion) bid for Scania AB, removing the last major obstacle to a nearly decade-long effort to forge an integrated heavy-trucks unit.

VW, which already controls two-thirds of Scania, now has shareholder support giving it 90.47 percent of the Swedish company, the Wolfsburg, Germany-based automaker said today. That pushes VW past the 90 percent threshold needed under Swedish law to force out remaining owners and delist Scania.

VW, Europe’s largest automaker, has been working to fully integrate Scania to deepen three-way cooperation between the Swedish company, Munich-based MAN SE, which VW also controls, and its own commercial-vehicles marque. The Scania purchase caps an effort that began in 2006 to create a global trucks division that can compete with leaders Daimler AG and Volvo AB.

“The commercial-vehicle business is increasingly becoming the second strong pillar for the group,” Chief Executive Officer Martin Winterkorn said today at the automaker’s annual meeting in Hanover, Germany. “We can now take the next logical and consistent step in our strategy to strengthen the operational integration.”

Scania gained as much as 0.2 percent to 199.90 kronor -- just below the offer price of 200 kronor per share -- and traded at that level as of 1:31 p.m. in Stockholm. VW was 0.4 percent lower in Frankfurt.

Limited Rewards

The German manufacturer has thus far reaped limited financial rewards for the billions of euros invested in buying control of Scania and MAN as minority investors resisted efforts to share technology that would boost overall profit. The combined businesses would overtake Stuttgart, Germany-based Daimler and Gothenburg, Sweden-based Volvo as the biggest truck producer in Europe.

VW has achieved only 200 million euros in savings from joint work among its light commercial-van 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.

“The development of the trucks business has been a fiasco because it’s taken far too long,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “The progress has been at a snail’s pace,” and even with the deal, “one has to think long term -- 10 to 15 years.”

Reversing Course

VW, which extended the offer period on April 30 after attaining shareholder support totaling 88.25 percent, had declined to raise its offer, which is 36 percent more than Scania’s closing price prior to the Feb. 21 proposal.

Alecta, a Swedish pension fund that holds 2.04 percent of the share capital, pushed VW over the 90 percent threshold today after deciding to accept the offer, which Alecta had earlier rejected as too low.

“After renewed talks with Volkswagen, it is our conclusion that a higher bid price cannot be achieved,” Alecta said in a statement on its website today. “Even though the bid still does not fully reflect Scania’s long-term value, we believe it is acceptable.”

VW at its annual meeting today withdrew a motion seeking renewed shareholder approval to sell convertible bonds for as much as 10 billion euros and create authorized capital. To finance the Scania takeover, 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 euros from reserves. VW had net liquidity at the end of March of 17.7 billion euros.

Investor Concerns

“We assume that VW is reacting to growing investor concerns regarding ongoing dilution and shareholders provisionally providing the funding for deals,” Arndt Ellinghorst, a London-based analyst at ISI Group, said in a note to clients. For future acquisitions requiring additional equity, the manufacturer “would most likely issue preference shares directly in order to fund a deal in our view.”

VW is also working to move forward its truck operations by hiring former Daimler trucks chief Andreas Renschler, 56, to succeed Leif Oestling, who was previously the Scania CEO, in overseeing the commercial-vehicles business. Renschler will assume the post in February.

At Daimler, he spent almost a decade running the truckmaking operations, the world’s biggest by revenue. His efforts included restructuring projects in the U.S., Japan and Brazil as well as expanding in emerging markets including China, Russia and India.

Strategic Move

“Renschler is definitely the best man for this challenge with his global industry experience and a neutral approach toward the brands,” said Roman Mathyssek, a Munich-based analyst at consultancy Strategy Engineers GmbH.

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.

“It’s a good strategic move for them,” said Mike Dean, a London-based analyst with Credit Suisse. “VW’s got a good track record of integrating companies, and now that they take away the arm’s length hurdle, they should be able to accelerate integration and synergies.”

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