Having received regulatory approval to take MAN over, VW can now accelerate plans to generate significant cost-savings and synergies between MAN and Scania.
IHS Global Insight Perspective | |
Significance | The VW Group has received regulatory approval from the European Commission to take a majority stake in heavy truck-maker and engineering group MAN. |
Implications | The Commission's approval means that VW will be able to take full management control of MAN and push forward in implementing cost-saving synergies between MAN and Scania. |
Outlook | Along with VW's existing majority holding in Scania, the acquisition will give it a strong position in the European truck market and a platform with which to make a global challenge to Daimler Trucks. |
The Volkswagen (VW) Group has been given regulatory approval by the European Commission to complete its takeover of MAN, according to a Financial Times (FT) report. The announcement means that VW can now begin to work towards accelerating synergies between MAN's heavy truck operations and Swedish truck-maker Scania, which VW owns a 70% stake in, in the areas of purchasing, research and development (R&D) and production. Regulatory approval from the Commission was the last major obstacle that stood between VW and full management control of MAN, and it is now able to appoint its own executives to the MAN boards. The Commission originally said in June that VW could not go ahead with plans to add a total of five members to MAN's supervisory board before receiving the necessary merger approval (see Germany: June 28 2011: EU Presents Roadblock to VW-MAN-Scania Deal).
VW launched a mandatory EUR95 (USD127.9) per ordinary share offer for MAN at the end of May after its shareholding rose above 30%, as required by German law. At the time VW believed that this would achieve around a 35-40% stake in MAN, which would give it a stable majority at MAN's annual general meetings (AGMs). However, there was a bigger take-up on VW's original offer than it anticipated and the when the deal is finally completed VW should hold 56% of voting rights and 54% of the share capital in MAN, giving it undisputed full management control over the company. The European Commission came to the conclusion that VW's acquisition of MAN would not erode the competitive framework of the European heavy truck market as VW would continue to face "strong competition", most notably from Daimler Trucks and Iveco. In a statement on the factors behind its decision the Commission said that it had studied the potential impact of the VW takeover of MAN on the European market and had found no evidence that competition in the market would be eroded. This is unsurprising given that the Commission authorised a merger between MAN and Scania back in 2006, although VW's interest in Scania meant this merger never actually happened. The Commission's statement said, "The Commission concluded that the proposed transaction would not significantly impede effective competition… because the merged entity would continue to face strong competition from other well established manufacturers."
Outlook and Implications
The decision means that VW now faces a clear a run in terms of gaining majority control of MAN, meaning that it can accelerate its plan to form a major player in the European truck market out of its holdings in Scania and MAN. The initial programme between the two companies to look at cost savings and synergies will now be accelerated, and will eventually allow both companies to increase margins and profitability. It has long been the ambition of VW supervisory chairman Ferdinand Piëch to create an integrated pan-European—if not global—truck unit that has the existing market share, technology base, brand reputation and dealership and service network to challenge Daimler Trucks and Dongfeng's position as the world's two leading truck groups, with the latter overtaking Daimler in 2010 as a result of phenomenal sales growth in China. However, even if MAN's and VW Truck group holdings are combined on a sales basis, they managed sales of around 150,000 units per annum (upa) last year, around half of Dongfeng's figures. MAN and VW Truck sales are forecast to hit 208,000 units by 2012, but Daimler will grow faster and it forecasts that it will regain its position as the top global truck-maker with sales of 390,000 units by 2012.
MAN and Scania will accelerate their programme looking at generating cost-savings through procurement and R&D, and it is likely that they will eventually look at shared production facilities, while working to maintain the distinct identity of both brands. This would follow a similar strategy to the one that the VW Group has successfully pulled off with its various volume passenger car brands. The collaboration may even eventually be expanded to shared truck vehicle architecture and powertrains. The move also means that VW has effectively re-acquired its Brazilian-based VW Truck & Bus unit, which MAN acquired from VW in December 2008, therefore giving VW a major slice of the South American truck market.