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Volvo truck bid breaks down
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February 22, 1999: 7:06 a.m. ET
Negotiations to buy Scania called off; Scania shares fall 6 percent
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LONDON (CNNfn) - Swedish vehicle maker Volvo backed out of plans to create Europe's largest maker of buses and heavy trucks Monday. Volvo wanted to buy rival truck maker Scania, but talks with Scania's major shareholder, investment group Investor, have hit a roadblock.
Volvo said it had broken off talks with Investor, which owns a 45 percent stake in Scania, "since the conditions for reaching an agreement do not exist at this time."
Scania shares fell 6 percent in Stockholm on the news, to 202 crowns, while Volvo was flat at 216 crowns.
The impasse marks a setback for Volvo in its efforts to shore up a vulnerable position in the fast-consolidating vehicle-manufacturing sector in the wake of Daimler-Benz's blockbuster marriage with U.S.-based Chrysler last year.
In early January, Volvo snapped up a 12.8 percent stake in Scania and announced its intention to purchase the rest of the truck maker once Investor had divested its stake.
Volvo followed up that purchase by selling its auto operations to Ford Motor Co. earlier this month in a $6.45 billion deal. Volvo said it intended to use the proceeds from that sale to help finance acquisitions as it shifts its focus away from its niche car business toward heavy trucks and other core businesses.
Volvo already enjoys a commanding global position in heavy trucks, just behind DaimlerChrysler and PACCAR of the U.S.
Car sales accounted for about 50 percent of Volvo's revenues - or about $12.5 billion - in 1997. The auto business, by contrast, paled in comparison with Volvo's much larger continental rivals.
Volvo said Monday that when it purchased the 12.8 percent stake in Scania, it acted in the belief that "Investor was considering withdrawing as the principal owner and accordingly was receptive to an offer for the entire company."
Subsequently, however, Investor dampened speculation that a takeover was imminent by saying it did not believe the time was ripe to sell its stake in the company.
But Percy Barnevik, Investor's chairman, said Scania needed to strike some "arrangement" with another vehicle producer and that a price of 250 Swedish crowns ($31.50) would be reasonable.
Following the breakdown in talks Monday, Volvo pledged to retain its holding in Scania "regardless of possible changes in its ownership."
On Monday, Leif Johansson, the company's chief executive officer, reaffirmed his commitment to an acquisition.
"Volvo has clearly declared its intention to participate actively in the ongoing consolidation in the commercial vehicle industry," Volvo said. "The decision to terminate discussions does not imply any changes in this objective, and we are now going to proceed with the work of strengthening Volvo's position."
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