Parting ways

Sources: VW preparing listing of truck subsidiary

LR2EB3C0OP7RU Reuters – MAN Scania trucks buses VW Volkswagen Group 2015
Too big to handle. Source: Reuters

Volkswagen will legally convert its truck division into an autonomous joint-stock company next month in preparation for a 2019 listing, Handelsblatt has learned from company sources. Wolfsburg-based VW is considering selling a minority stake in Volkswagen Truck & Bus to bring in billions for the parent as the global vehicle market is upended by electronic and autonomous vehicles. The Hanover-based unit could be valued in the double-digit billions of euros.

A final decision has not yet been taken and would partially undo the efforts of former CEO and Porsche family heir Ferdinand Piëch to create a global vehicle maker that produces everything from tiny city cars to hulking over-the-road trucks. Mr. Piëch ’s years-long efforts brought the iconic German carmaker well-known truck brands such as Munich’s MAN and Sweden’s Scania. An initial public offer would need the approval of powerful labor representatives concerned about workers’ interests. However, it could give divisions more autonomy and redirect the parent’s focus into a holding company.

VW executives have been focused on crisis-management since Matthias Müller took over as CEO in September 2015, when Dieselgate became public. The listing would be a welcome strategy leap for the team that has also put considerable effort into electromobility and connected vehicles. The overhaul would give VW a holding company strategy similar to that of rival carmaker Daimler or supplier Continental.

Senior management hopes the decision to demerge the truck unit will mark a decisive shift in that direction. If the legal redefinition of the division goes ahead, it will receive its own credit rating and will be able to raise its own capital. Investment banks to oversee an IPO would be selected later in the year.

Management must also convince the works council that the move is a sound one.

The IPO would be massive, second only to Siemen’s upcoming sale of Healthineers, its medical engineering division. Volkswagen sources suggest a valuation for VW Truck & Bus in low double-figure billions, with the Scania brand of high-end trucks seen as particularly valuable. The truck division currently employs around 80,000 staff, with annual revenues of more than €25 billion ($30.8 billion).

The listing is far from delivered. Trucking is particularly sensitive to economic trends and an unexpected downturn could derail the plans. Management must also convince the works council, traditionally powerful at Volkswagen, that the move is a sound one. Labor representatives may fear that a legal change in VW Truck & Bus could reduce its power on the supervisory board.

In a Handelsblatt interview earlier this year, Andreas Renschler, head of the truck division, said his focus was on bringing the truck brands closer, strengthening innovation and expanding outside core markets. Mr. Renschler was brought in from Daimler three years ago, partly in order to achieve better cooperation between the MAN and Scania brands.

This has not been easy. The two truck brands are competitors: although they now cooperate on development and purchasing cooperation, progress in achieving synergies has been slow. VW could save billions, for example, if the two brands were to use the same engine platform.

VW's controlling family shareholders have apparently been convinced of the advantages of demerging VW Truck & Bus.

Mr. Renschler has also pushed to globalize the VW truck brands, which have traditionally been strong in Europe but absent in North America and Asia, major industry growth markets. In recent years, VW took a stake in US competitor Navistar, while also launching a series of joint ventures and acquisitions in Russia and China.

If the demerger goes ahead, it would also mark a shift in the attitude of the Piëch and Porsche families, descendants from VW Beetle designer Ferdinand Porsche, which together control 52 percent of the company. Traditionally, the families have opposed asset sales: last year, when Mr. Müller wanted to sell motorbike manufacturer Ducati, they vetoed the deal.

However, the families have apparently been convinced of the advantages of demerging VW Truck & Bus. This has raised hopes among VW executives that further reforms may be possible. Sources suggest that Mr. Müller ultimately wants to convert VW to a holding company, along the lines pioneered by Siemens.

Daimler, maker of Mercedes-Benz cars, is also currently examining a shift in this direction. Experts say a holding company can also benefit investors through greater transparency. Historically, moves to restructure companies along these lines have usually been rewarded by an increase in stock prices.

But time is of the essence. Technological shifts are already impacting the industry hard. Mr. Müller’s term in office ends in mid-2020: If he wants to leave VW in a strong position, change will need to begin this year.

Martin Murphy covers the steel, car and defense industries for Handelsblatt. Stefan Menzel writes about the auto industry focusing on Volkswagen. Markus Fasse specializes in aviation and automobile industry news and works from Handelsblatt’s Munich office. To contact the authors: murphy@handelsblatt.com, menzel@handelsblatt.com, fasse@handelsblatt.com

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