Scania committee recommends rejection of Volkswagen's bid

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STOCKHOLM (Bloomberg) -- A Scania board committee recommended minority owners reject Volkswagen's bid for the rest of the Swedish truckmaker, saying the 6.7 billion-euro ($9.33 billion) offer for the stock VW doesn't own is too low.

The bid "does not reflect the long-term fundamental value of Scania and a fair share of the expected synergy potential," the committee tasked with reviewing the offer said today. "Scania is a world leader in its industry, and the committee has strong faith in the business plan set out."

The 200 krona-a-share bid is 36 percent higher than the company's closing price on Feb. 21, when VW announced its plan for a full takeover. The tender period began yesterday and ends April 25.

The rejection is a blow to VW's effort to restart a stalled plan to create a global heavy trucks unit that can compete with industry leaders Daimler and Volvo AB. VW has reaped limited financial rewards for the billions invested in the last decade to purchase controlling stakes in the Swedish company and German truckmaker MAN as minority investors resisted efforts to share technology that would boost profit.

In turning down the offer, the Swedish company said today it’s made "significant investments" to boost product offerings and that the operating margin will improve in the coming years as a result. The return on sales in 2013 was 9.7 percent. The Swedish Shareholders' Association, which represents thousands of small investors, said today it will examine the committee’s report before making a recommendation.

"We still welcome an offer as the situation with a majority owner that cannot represent the minority owners is untenable," Carl Rosen, the association’s chief, said. "We expect that VW, if they want to complete the transaction, will come with a new offer."

VW said today the automaker would comment later on the board committee's rejection. VW and Munich-based MAN together have 62.6 percent of the equity in Scania and 89.2 percent of the votes. Scania and MAN both make heavy trucks, while VW's own commercial-vehicles business produces delivery vans and the Amarok pickup.

Cost reductions

VW has only achieved 200 million euros in purchasing savings from Scania, its van unit and MAN. VW’s goal is to deepen cooperation between the three in areas such as drivetrains, chassis, cabins and electronics to reach annual operating profit synergies of 650 million euros. Scania said that, although it already cooperates with MAN on 100 initiatives, the financial benefits to the Swedish truckmaker in 2014 will be limited.

The combination of MAN and Scania would be bigger than Volvo, currently the second-largest global truckmaker. The two VW units' 2013 deliveries totaled 220,800, compared with 200,300 for Volvo. Daimler sold 484,200 trucks over that period. The three manufacturers would vie for the lead in Europe.

Scania's truck orders in January and February were on a comparable level to a year earlier and its market share in Europe in the first two months increased to 14.9 percent from 14.7 percent, the Swedish company said today.

Investor opposition

The European heavy-truck market has suffered from the region's sovereign-debt crisis as the stumbling economy sapped demand. Industrywide sales last year of 240,000 vehicles were 25 percent below the 2007 level.

Scania's minority investors have thus far not bought into VW's integration plan. Some last month asked for an independent auditor to examine whether ownership of the company by VW and MAN poses a conflict of interest. They oppose the elimination of a board-nominating committee and a 16 percent cut in the dividend for 2013 to 4 kronor per share.

Volkswagen only plans to pursue the bid if it can secure 90 percent of Scania, which is the threshold needed under Swedish law to force the remaining owners to sell their holdings and delist the company.

"This is largely box ticking by the independent board members who will lose their posts if the deal is successful," Mike Dean, an analyst with Credit Suisse in London, said in an e-mail. "It is unlikely that VW will increase its bid."

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 more integrated heavy truck division.

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