The parent of Saab Automobile, Swedish Automobile, has announced that it has terminated an agreement with the Chinese investors set to provide a lifeline for the automaker.
IHS Global Insight Perspective | |
Significance | The parent of Saab Automobile, Swedish Automobile, has announced that it has terminated an agreement with the Chinese investors set to provide a lifeline for the automaker. |
Implications | This is only likely to add to the pressures that have hit the chances of the company's survival in the past week. |
Outlook | CEO Victor Muller remains defiant about the survival chances of the automaker, but it could be near the point now where he unveils Plan B. |
The parent of Saab Automobile, Swedish Automobile, has announced that it has terminated an agreement with the Chinese investors set to provide a lifeline for the automaker. In a statement released late yesterday (23 October), the company said it had given notice for the termination of the share subscription agreement signed in July with PangDa Automobile Trade and Zhejiang Youngman Lotus Automobile. This would have seen the pair take 53.9% of Swedish Automobile for EUR245 million (USD340.1 million). Swedish Automobile said that it had taken the decision as a result of PangDa and Youngman having "failed to confirm their commitment to the Subscription Agreement and the transactions on the agreed terms contemplated thereby as well as to explicit and binding agreements made on 13 October, 2011 related to providing bridge funding to Saab Automobile AB (Saab Automobile) while in reorganization under Swedish law". It also said that the pair have also presented "certain conditional offers" on 19 October and 22 October as alternatives for 100% of the shares in Saab "which are unacceptable". However it added that discussions between all parties are ongoing.
Following the statement, the chairman of PangDa Pang Qinghua has confirmed that talks are still taking place between the parties involved. He told Bloomberg News in a telephone interview: "All plans that are beneficial for Saab should be discussed during the reorganization… We have been in touch after the weekend announcement and continue to look at new proposals".
Outlook and Implications
Despite having received a commitment from PangDa and Youngman around a fortnight ago, and having received a tranche of the bridging financing that it was expecting, the future of Saab hit another roadblock last week with the souring of the relationship following a full-blown offer from the pair. Adding to the automaker's difficulties has been the decision by Saab's administrator Guy Lofalk to request the termination of the voluntary restructuring process at a court in Vanersburg (Sweden). The announcement came despite a funding commitment from US private equity firm North Street Capital which would step in to offer bridging financing as the cash that Youngman had been set to provide has been slower coming through than expected (see United States – China – Sweden: 21 October 2011: US Private Equity Firm to Step In with Saab Financing, Relationship with Chinese Investors Appears to Sour). Victor Muller, the CEO of Swedish Automobile and the chairman and CEO of Saab, is set to fight Lofalk when the proposal comes in front of the court, expected some time this week. Muller believes that the change of stance by the Chinese investors came as they heard his views on the future of the company. In an interview with Sweden's Radio P4 West reported by Autocar, the senior executive said, "In our view Lofalk has overstepped all possible areas of his mandate as administrator… He is basically focused on a change of ownership of Saab and not on the reorganisation itself, which is what he was appointed to do by the court". He went on: "We have had some very clear indications that the Chinese investors were not going to fund [Saab] as they agreed last week in writing. Last weekend Lofalk went to Beijing [China] to meet with both PangDa and Youngman. Clearly [those meetings] caused them to change their minds and go for an effort to make another kind of deal. That is unacceptable". While if this is the case, Lofalk may have stepped beyond the realms of his responsibilities, it is unlikely that his visit alone would have persuaded the Chinese investors that they may want to change tack. Indeed, the time it was taking for the cash to come through may have been a hint that this was the case.
Although the latest news adds to the cracks in the foundations of the business, Muller remains defiantly optimistic. He also remains opposed to the automaker going into bankruptcy, stating that it has "a completely prepared plan on how to exit the reorganisation in an orderly fashion," including a strong business plan and an intention to pay its creditors. He added: "The only missing link between today and exiting reorganisation within a deal with our creditors was reaching of agreement with [the Chinese government's National Development and Reform Commission] NDRC for the approval of the Chinese parties. I would say we were days away from that but now it seems we are a little bit further away today than we were a week ago". Muller also said that it is "definitely not the end of Saab. In the past two or three years Saab has been declared dead by so many people, so often and so far everybody has been wrong and they will remain wrong. Saab will not go down". While it may have been true that the automaker has managed to scrape through in the past, without the Chinese investors it is rapidly running out of options capable of saving the company. Although North Street Capital has been linked with putting investment in beyond the bridge financing, it is questionable whether it would want to sink as much as would be required to keep Saab on an even keel in the short and medium term. Muller has mentioned that he does have a Plan B as a second resort, and we may be at a point now when we get to see what this could comprise.