Investor Comments On Sale of Scania Shares to Volvo
6 August 1999
Investor Comments On Sale of Scania Shares to Volvo
STOCKHOLM, Sweden--August 6, 1999--At a press conference held in Stockholm today in conjunction with the agreement reached with Volvo on the sale of Investor shares in Scania, Marcus Wallenberg, President and Chief Executive Officer of Investor AB, made the following comments:"We are very pleased at Investor with the agreement that we have reached with Volvo today. The reason for the transaction being conducted today is that we are in agreement on the valuation of Scania and we have, to a considerable extent, the same perception of the synergy effects that can be achieved by bringing the two companies together.
"Long-term, and certainly before the development of the next generation of motors, trucks and buses within five to six years, we felt that it would be advantageous for Scania to collaborate or merge with some competitor. The reason is that each new product generation is more costly to develop as well as the fact that the truck industry is being globalized ever more rapidly. Scale advantages are becoming more and more important and global strength becomes crucial. Even if Scania has been well positioned for the coming years, consolidation of the truck industry is taking place right now. Different parties have shown an interest in Scania, not least Volvo which bought a minority block of shares at the beginning of the year.
"Short-term, it was important for us to see Scania show a profit boost following the product introductions that were made. We were eager for Scania's market valuation to reflect this earnings capacity. With the release of the second-quarter earnings report today, Scania has shown that once again it is well on the way back to its good old form.
"Our belief in this merger is demonstrated by our intention to use 40 percent of the payment we have received to acquire shares in the merged company. The combined Volvo-Scania fulfills very well Investor's criteria regarding industry leadership, growth, investment return and the possibility for participating as an active owner.
"Both Volvo and Scania are very solid trademarks. Scania will be a separate unit in Volvo side by side with Volvo trucks. The trademark and dealership network will be separate. The new company becomes the second-largest truck manufacturer, perhaps the biggest in integrated truck manufacturing, which is of crucial significance for achieving advantages of scale on the components side.
"The transport sector generally has stronger growth, compared with GNP. Growth in the truck sector is to be found, above all, in the new geographic markets, for example, East Europe, and in the new service concepts. Both Scania and Volvo are well positioned in these areas. The improved costs position will also generally reinforce the company's competitive strength and provide possibilities for increased market share in the long run.
"As for investment return, Scania continues - and has been for a long time now - to be in a class by itself. Technologically, the company is a leader in its field. Through "best practice" and through its use of economies of scale, we are convinced that the new company will have an earnings capacity that corresponds ideally to our demands for investment return.
"The Board placement we are acquiring in Volvo is in keeping with our desire for owner influence.
"Naturally, there are elements of risk in all corporate mergers. These give rise to fears concerning earnings as well as the likelihood of reduction of the workforce in Sweden. Our judgement is that management is well aware of these risks and will do its utmost to limit any eventual drop in earnings.
"All in all, we at Investor are very pleased with the outcome of this transaction. We become a major owner in a company that, in line with our thinking, has very good prospects for the future. Moreover, in addition to the close to 7 billion kronor that was freed up in connection with the exercise of options in June this year, Investor is liberating more than 10 billion kronor for business in new areas with rapid growth and can perhaps supplement certain other holdings, which we would like to do."
Investor AB is the largest Swedish industrial holding company. It generates value for the shareholders through long-term active ownership and active investment operations. Over the past 20 years the average total annual return to the shareholders has exceeded 20%.
Investor AB is a lead shareholder in a number of Sweden's largest, most internationally active companies. These include AstraZeneca, Ericsson, Scania, ABB, Gambro, Stora Enso, Atlas Copco, SEB, WM-data, Electrolux, Saab AB, Saab Automobile AB (50%), SKF, SAS and OM Gruppen. Investor's largest shareholders are the Wallenberg family foundations and a number of mutual and pension funds.
Investor AB is based in Stockholm, with offices in Hong Kong, London and New York and Amsterdam. Investor AB press releases can be accessed at www.investor.se on the Internet.