PARIS - Volvo AB will acquire Renault's truck division, Renault Vehicles Industriels, in a A1.7 billion deal that will create the world's second-largest truckmaking group after DaimlerChrysler.
'Renault wished to stay in the truck business but had to look for a partnership,' said Renault CEO Louis Schweitzer. 'This choice offers a unique and clear shareholding situation and allows Renault to remain in the truck business.'
The deal calls for Renault to receive 15 percent of Volvo's shares for the truck division. In addition, Renault will pay Volvo about A500 million to raise its stake another 5 percent. The agreement still needs European and US government approval, expected in the autumn.
Schweitzer and Renault VI Chairman Patrick Faure will join the board of Volvo AB.
'Volvo is the best choice for Renault VI,' said Schweitzer. 'We know each other well. Both operations are complementary from an industrial and commercial point of view in Europe and in the USA.'
'Volvo and Renault VI will be integrated in projects, platforms and purchasing but run as decentralized companies,' said Leif Johansson, president and CEO of Volvo AB. A joint engine program and two new platforms - one for medium-duty trucks and one for heavy trucks - will be developed.
The deal makes sense for Volvo because it needed to find an alliance for its truck division after the European Commission refused last March to approve a planned acquisition of Swedish truckmaker Scania.
Volvo still holds 45 percent of Scania shares and 30.6 percent of voting rights, but Scania's first shareholder is now Volkswagen AG. VW this year acquired 34 percent of voting rights of Scania from the Wallenberg family, previously Scania's main shareholder.
Renault and Volvo failed to merge in late 1993 after a group of Volvo shareholders opposed the merger.
The combined Volvo/Renault VI group will become the leading maker of heavy trucks in Europe with a 27.3 percent market share, ahead of Mercedes-Benz with 20.8 percent and Scania with 14.8 percent.
The group will control nearly 50 percent of the market in France, 30 percent in Spain, 26 percent in the UK, 21 percent in Italy and 9.6 percent in Germany.
In the USA, Volvo and Mack - Renault VI's US arm - will hold together 23.8 percent of the heavy-duty truck market. That will be second only to Freightliner - owned by Mercedes-Benz - with 31.9 percent of the market, but ahead of Navistar, with 15.9 percent.
Johansson said Mack is one of the main reasons Volvo is buying into Renault VI. 'Mack is an ideal partner for continuing expansion of our North American truck facilities,' he said.
The deal also means Volvo will become the world's third-largest maker of heavy diesel engines, with a combined 124,000 units in 1999. The No. 1 and No. 2 positions are held by US makers Cummins (154,000 units) and Caterpillar/Perkins (149,000 units).
Jim Henry contributed