Volvo gets freedom to restructure

2012-12-13 19:05

Paris/Stockholm - Renault has sold its stake in Swedish truck manufacturer Volvo to invest in its core business and cut debt, giving the Swedish company greater freedom to tackle its own problems in Europe.

The French car maker came close to an outright merger with Volvo in 1993 and had held a stake in the business since 2001, when it sold its trucks division to the Swedish company in return for shares.

Battling a decline that has sent sales near a 20-year low, European automakers have had to slash costs, cut jobs and close plants. Renault has said it does not plan site closures but is seeking union concessions in a nationwide labour deal.

The €1.48bn proceeds of the sale of Renault’s Volvo stake will fund domestic and international investments, it said, and reduce automotive net debt, which stood at €818m at June 30.

Renault has set itself a target of achieving positive free cashflow this year even as it revised down its full-year European market forecast to an 8 percent contraction at best.

Rival PSA Peugeot Citroen, meanwhile, is scrapping more than 10,000 jobs and a domestic plant to stem losses approaching €200m a month.

Renault’s move leaves Swedish investment firm Industrivarden as the biggest shareholder in Volvo with a 15.6% voting stake, a holding it might seek to top up with some of the shares sold by the French car maker.

“One could imagine that Industrivarden picks up some shares to be on the safe side,” Nordea equity strategist Mattias Eriksson said. “They would in that case just be looking to secure their No. 1 position as owner.”

Industrivarden declined to comment.

Logical step

Renault shares rose 2.1% to €40.475 by 10:22 GMT on Thursday, while Volvo’s stood at 92.85 Swedish crowns, down 3.2% on the day but above the placement price for the French company’s 17.2% voting stake.

“We see an opportunity for Renault to benefit from a good valuation on non-core investments and rapidly get back to a positive net cash position, which could ease the refinancing of existing debt or avoid costly new funding,” SocGen analysts wrote.

Renault said the block of 138.6 million Volvo “A” shares, representing 6.5% of Volvo’s capital, was placed at 92.25 Swedish crowns ($13.87) per share. This was in the middle of the range of between 91.25 crowns and 93.25 crowns cited by a source familiar with the matter on Wednesday.

While the timing of Renault’s exit was a surprise, Citigroup analysts said: “Volvo’s share price, at about 96 crowns, is still near its highs of the year, so we can see the logic in proceeding now.”

For Gothenburg-based Volvo, shares of which have risen 30 percent since their June lows, the sale reduces the chances of French politics interfering with its efforts to cope with the deep downturn in Europe, its biggest market.

Volvo’s truck brands include the French-based Renault Trucks unit, which has often underperformed the rest of the group.

“We take a positive view on the sale. Any instances where French politics might enter the boardroom are removed, and that will make it easier should they need to restructure,” Nordea’s Eriksson said.

Renault Trucks has a larger proportion of sales in southern Europe, where the debt crisis has savaged the cyclical demand for trucks to a much greater extent than farther north.

“This means that Volvo gets more room to manoeuvre, and given the weak demand in the market in the south European markets, more and larger measures may be needed there,” Pareto analyst David Jacobsson said.