Renault/Volvo stake sale rumours re-ignite
By: Oliver Dixon, Thursday, March 26, 2009, AutomotiveWorld.com
Rumours surrounding Renault and its stake in AB Volvo - the French OEM is the Swedish truck manufacturer's largest single shareholder with a 21.8% stake – are nothing new. But a fresh suggestion – published recently in Swedish Business magazine Veckans Affarer, is intriguing. This indicates that Investor AB, which, until March 2008 held 30.62% of the voting rights in Scania, is talking with Renault with a view to acquiring the French OEM's holding in Volvo, itself a legacy of the sale of the Renault commercial vehicle business to the Swedish truck producer in 2000. Renault has denied current discussions about disposal of its shareholding, despite reportedly having indicated to investors earlier in March 2009 that the option was being considered.
In reality, times are challenging for the French OEM and its growth and financial ambitions may seem at odds with the realities of its situation. Although the company is striving hard to optimize free cash flow it has made clear that targets on volume growth and profitability made under Renault Commitment 2009 are no longer deliverable. In current capital market circumstances, the sale of an increasingly non-core shareholding to raise funds could make a lot of sense, and a sale of that share to a holding company (Investor) which tends towards a long view of investment returns would also keep Renault in good favour with its European competitors. The Volvo stake probably represents one of the last opportunities, at least for the time being, for an industry or financial investor to achieve a significant toehold within a European OEM with a key position in the heavy truck sector. Renault needs friends rather than enemies at the moment, something unlikely to be achieved by a sale to, for example, a foreign OEM or financial concern viewed as 'hostile'.
If this does go the distance, then there will be clear winners and losers. Volvo has long battled against activist shareholders such as Christer Gardell and the Cevian operation. A long-minded investor such as the Wallenberg family, owners of Investor, would provide something of a bulwark against this, and Volvo – which has just posted February figures showing a 48% year-on-year decline in truck deliveries worldwide – would no doubt welcome the stability. The Wallenbergs too could be positioned favourably: Investor exited Scania at SEK 200 a share, against a current price just north of SEK 65 a share, and could probably secure a substantial holding in Volvo for below SEK 50 a share – against a 52-week share price high of over SEK 100. These are numbers that may add up to a compelling proposition for Investor, although Renault may, of course, may view the current value of its Volvo stake to be a less compelling reason for disposal.
The real loser in such a scenario would probably be Renault Trucks, however. Volvo's twin truck brand approach in Europe becomes less appealing every quarter, and it is entirely reasonable to ponder the marque's long-term future. Renault trucks now use a Volvo Powertrain driveline, and the cost-benefit balance of maintaining two parallel, barely differentiated brands to compete in the same overcrowded European market has to be dubious at best. The exit of a major French shareholder from Volvo could well spur the retirement of the Renault brand name.
It is difficult to gauge quite what this means by way of market confidence. Investor seems likely to play this long, and so its analysis may have suggested that the bottom of the cycle has been reached or is approaching, and that the global truck market is poised for an upturn. Alternatively, it may be that acquiring a sizable stake in the world's second largest truck manufacturer at a close to 50% share price discount against the 52-week high is just seen as an attractive investment proposition. There can surely be no doubt though that if Renault does decide to sell, Volvo would much prefer a major shareholder such as Investor against many of the other candidates that have been mentioned of late.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Published on Thursday, March 26, 2009
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