Global Insight Perspective | |
Significance | Trading of Scania shares was suspended on the Stockholm stock exchange after the company explained that it had reason to believe MAN was making preparation for a takeover. |
Implications | After successfully restructuring its business and reporting solid financial results in the first half of 2006, MAN has said it needs to treble its truck volumes to level with leading competitors and was open to talks with any industry player about a possible tie-up. The German conglomerate is also believed to be actively discussing with Scania's largest shareholders, the VW Group and Investor AB. |
Outlook | A possible linking up between MAN and Scania has been seen as the next likely consolidation phase within the truck sector. Not only because both companies have been collaborating on industrial projects for a while but also because there are only few options left to smaller players looking to gain a size advantage, this includes Iveco, MAN, Scania, Navistar and Isuzu. |
MAN Makes a Move
Swedish truck manufacturer Scania has announced that it has reason to believe German industrial conglomerate MAN is preparing a takeover bid for the company. The announcement came after trading of Scania shares on the Stockholm stock exchange was suspended as the price rose by 9% following rumours of a possible MAN takeover bid. MAN declined to comment on speculation that it might make a move on Scania AB.
MAN has successfully restructured its operations to focus on commercial vehicles, diesel engines and turbines for the energy industry, by selling off its printing division for about 600 million euro (US$762 million). Group first-half net profit soared, partly thanks to robust demand for new trucks in Europe. The company made a net profit of 352 million euro (US$450 million) in the first half, compared to 153 million euro in the same period last year. Revenues rose 10% to 6.785 billion euro. The company's first-half operating profit surged 67% to 488 million euro.
MAN attributed its impressive first-half financial results to brisk sales of new trucks, mostly supported by robust demand in Europe, and lower restructuring charges. In light of these results, MAN has upgraded its outlook for 2006 but also said that it needed to increase its volumes three-fold to be able to compete effectively against lager competitors such as DaimlerChrysler (DCX) and Volvo AB. This will also make MAN's commercial vehicle division a less likely acquisition target.
Outlook and Implications
The highly cyclical truck market has passed its peak and, like Volvo AB, other leading players are looking for acquisitions to expand their reach and deliver their targets. MAN has tried to take full control of its joint venture with Navistar in the United States, but then reconsidered this option, privileging deeper cooperation with the U.S. truck-maker. Earlier, Volvo AB increased its holding in Nissan Diesel and has an option to buy the remaining 6% stake in the Japanese truck-maker. Scania has long been in the sights of MAN, not only because both companies have been collaborating on industrial projects for a while but also because there are only few options left to smaller players looking to gain a size advantage, this includes Iveco, MAN, Scania, Navistar and Isuzu. MAN and Scania have been cooperating on engines and axles for several years before ending their collaborations a few months ago. Rumours of a potential "merger" between the two companies first emerged when Volvo AB was ordered to dispose of its majority stake in Scania by the European Commission (EC) and MAN was seen as a likely candidate to purchase the stake. Volkswagen (VW), which already controls a 34% voting stake in Scania, was also a potential suitor.
Scania, which made its reputation in the high-end part of the truck segment, would perfectly complement MAN's commercial vehicle line. However, a swift move from the German truck maker is unlikely. MAN is rumoured to be in active talks with VW and Investor AB, a Swedish holding company which owns 9.5% of the capital of Scania and 15.6% of the voting rights. However, VW is unlikely to decide hastily to abandon its strategic stake in the world's most profitable truck maker, while Investor AB is believed to be in favour of MAN moves. VW is also keen to participate in the sector's consolidation through the disposal of its Brazilian truck and European van businesses. On the other hand, after being freed from its ties with Volvo AB, Scania has often said that it preferred to remain independent.