Volvo AB, Europe's second-largest truckmaker, agreed to buy Nissan Diesel Motor Co. for 7.5 bln kronor (€8 billion) to add production in Asia, the world's fastest-growing economic region.
Shareholders in Nissan Diesel Motor Co., Japan's fourth-largest truckmaker, will receive ¥540 a share, Gothenburg, Sweden-based Volvo AB said in a statement today. That's 22% higher than yesterday's closing price on the Tokyo Stock Exchange. Volvo already owns 19% of Nissan Diesel.
The maker of Volvo, Mack and Renault brand trucks follows DaimlerChrysler AG, the world's largest truckmaker, in buying a Japanese manufacturer to increase production in the region. Volvo last year sold 7% of its trucks in Asia.
Nissan Diesel also offers technology that can reduce engine emissions as countries tighten pollution standards. „Asia has been a weak spot for Volvo,” said Ichiro Takamatsu, a chief investment officer at Alphex Investments Co., a Tokyo-based hedge fund.
„Volvo gains a channel to expand in Asia by acquiring Nissan Diesel.” Shares of Volvo gained as much as 13 kronor, or 2.4%, to 562 kronor and were up 1.5% to 557 kronor as of 11:07 a.m. in Stockholm. Nissan Diesel stock rose 18.1% to close at ¥523 on the Tokyo Stock Exchange. „I believe that the merger is the best alternative for Nissan Diesel's future,” Nissan Diesel President Iwao Nakamura said in today's statement.
Jorma Halonen, Volvo's deputy chief executive, said at a Tokyo press conference that acquiring Nissan Diesel was „very important” to developing new vehicles that emit fewer pollutants, as tougher emission standards are introduced in Europe, Japan and North America between 2009 and 2013. Volvo is paying 13 to 14 times net income for Nissan Diesel shares, according to Henrik Breum, an analyst with Danske Equities in Copenhagen, who has a „buy” rating on the stock.
The industry average in 2007 is 13.2 times earnings, he said. „I don't think this will have a significant diluting affect in terms of the Volvo shares,” Breum said. Credit-default swaps based on 10 million euros of Volvo debt were unchanged at 23,500 euros, according to JPMorgan Chase & Co. Credit-default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt. A decrease indicates an improvement in credit quality.
The Swedish truckmaker, 20% owned by Renault SA, bought a 13% stake in Nissan Diesel from Tokyo-based Nissan Motor Co. in March of last year for 1.5 billion Swedish kronor. Volvo boosted its stake to 19% in September. Volvo plans to complete the buyout by the end of March.
Nissan Diesel and Volvo estimated in November that their alliance would boost combined profit by €200 million ($263 million) a year within five years. The companies also agreed to share sales networks in Japan, China and North America and develop engines together.
Nissan Diesel said it expects to reduce purchasing costs, which total about ¥180 billion a year, by as much as 20% by jointly buying parts with Volvo. The companies will share a chassis for heavy-duty trucks and co-develop a new medium-duty truck. They will also jointly develop diesel-electric hybrid technology and study using alternative fuels including ethanol.
Nissan Diesel will use Volvo's auto financing service in North America and other overseas markets. DaimlerChrysler took control of Mitsubishi Fuso Truck & Bus Corp. from its former parent Mitsubishi Motors Corp., paying ¥141 billion ($1.2 billion) for a 65% stake in 2003 and 2004. It gained another 20% in 2005.
Volvo CEO Leif Johansson has said he's focusing on Asian acquisitions for the truckmaking division, in part, because the company is too large in Europe and the US to get regulatory approval for purchases. Volvo last year sold 47% of its trucks in Europe and 43% in the Americas.
The company develops and produces trucks in Sweden, Belgium, Brazil and the US, and has Asian assembly plants in Saudi Arabia, India, Iran, Taiwan, Malaysia, China and Thailand. The European Union blocked Volvo's effort in 1999 to buy Swedish rival Scania AB.
The purchase comes as European truckmakers, flush with profit because of rapid expansion in eastern Europe, are paying shareholders special dividends and seeking acquisitions. MAN AG, Europe's third-largest truckmaker, last September launched a failed takeover of Scania. Volvo, Scania and MAN all boosted their 2006 payments to shareholders as they posted record profit.
Truckmakers are targeting China, the world's second-largest auto market, where economic growth is projected to boost commercial vehicle purchases. Sales of buses and trucks rose 14% in China last year to 2.04 million vehicles. Economic growth of about 9% a year for the past decade will likely cause commercial vehicle sales to expand at least 10% a year over the long term, according to an estimate by KPMG LLP.
Nissan Diesel is the only one among four Japanese truckmakers that has a production site and sales network in China, according to the company. The company partners with Dongfeng Motor Group Co., China's third-largest automaker. Volvo aims to raise its Asian market share for heavy-duty trucks, including those made by Dongfeng, to between 20 and 25% from between 5 and 10% now, Halonen said.
Volvo will assume Nissan Diesel's net interest-bearing debt of about 7.5 billion Swedish kronor. Mizuho Securities Co. is advising Nissan Diesel on the buyout, and Mitsubishi UFJ Securities Co. is advising Volvo. (Bloomberg)