Volkswagen AG Buys Controlling Share of Scania Trucks

GENEVA/STOCKHOLM, March 3, 2008; Christiaan Hetzner and Niklas Pollard writing for Reuters reported that Volkswagen will take majority control of Swedish truckmaker Scania in a $4 billion deal that brings it a major step closer to its goal of creating Europe's truck market leader.

The move announced on Monday to buy out Sweden's Wallenberg family ends a paralysing stalemate over the future of Scania since early last year when it fended off a hostile bid from German rival MAN, in which VW, Europe's biggest carmaker, owns 30 percent.

The two sides had made scant progress on a friendly deal being pushed by VW Chairman Ferdinand Piech, a member of the powerful clan that owns sports car maker Porsche and is also VW's biggest shareholder.

Piech, who is also chairman of MAN, is widely believed to be stitching together a global empire automotive ranging from small cars to the heaviest trucks.

"This is a major step forward for all parties involved," Volkswagen Chief Executive Martin Winterkorn told a news conference in Stockholm, stressing that uncertainty over Scania's ownership had finally been laid to rest.

"One could say that the company has been in play since January 1999. That is a very long period," Scania Chief Executive Leif Ostling added, referring to a bid from Volvo that fell foul of European antitrust regulators.

"What we have seen now is that, most likely, the period of speculation around the ownership of Scania will be gone and that is very good for the company management and the people working within the organisation."

MAN ROLE

Volkswagen is not obliged to make a buyout offer to Scania's remaining shareholders, VW finance chief Hans Dieter Poetsch said in Stockholm.

"Wallenberg's move clears the way for a merger between MAN, Scania and VW's Brazilian heavy truck activities," analysts at Cheuvreux said in a note.

"We estimate the synergy potential from the merger between MAN and Scania of 8.4 billion euros (before financing costs). The structure of a merger, however remains uncertain."

Volkswagen will pay 200 Swedish crowns per Scania A share -- a 17 percent premium to Friday's closing price -- for a total of 26.94 billion crowns ($4.36 billion) to raise its voting stake in Scania to 69 percent from 38 percent. The deal is still subject to regulatory approval.

MAN's hostile 10 billion euro-plus takeover bid for Scania, launched late in 2006, had sparked opposition from Ostling, who had to apologise after likening the hostile approach to a German "blitzkrieg" even though a Swede runs MAN. Both Volkswagen and the Wallenbergs rejected the deal.

MAN pulled its offer in January 2007 and the three large shareholders resolved to work towards a friendly merger.

Unlike larger truckmakers Volvo and Daimler that can extract economies of scale, Scania and MAN need to work together fast to save costs on the development of new lower-emission truck engines, analysts have said.

Winterkorn saw scope for VW and Scania to cut costs by cooperating in such fields as electronics, hybrids, hydrogen fuel systems and light-weight materials. He said no big job cuts at Scania were planned.

A MAN spokesman welcomed the Wallenberg family's decision to sell the Scania stake, which has been a key part of its Investor AB investment vehicle since its inception over 90 years ago.

"We see the chances improving for the collaboration," the MAN spokesman said. He added it was too early to guess how the two truckmakers might forge an alliance with Volkswagen's own commercial vehicles business.

Volkswagen said it would develop Scania as a premium brand and push for continuity in management, adding it did not foresee any further structural changes that would harm its staff.