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Volvo hikes Scania stake
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May 3, 1999: 8:09 a.m. ET
Swedish vehicle giant's increased hold on rival raises ire of Investor AB
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LONDON (CNNfn) - For the fifth time this year, Swedish vehicle maker Volvo AB has boosted its stake in rival Scania, prompting an angry response from Scania's main shareholder, which contends Volvo is hogging the road to the detriment of more desirable partners.
After markets closed in Stockholm Friday, Volvo announced it had hiked its interest in Scania to more than 20 percent of the company's votes and capital.
In response, Investor AB, the investment vehicle of Sweden's powerful Wallenberg dynasty, reshuffled its own portfolio to fend off Volvo's advances. Investor increased its voting stake in Scania to just over 49 percent from 42 percent and increased its share capital to 27.3 percent from 26.5 percent.
Volvo's shares were up 3.1 percent in Stockholm Monday at 229.5 crowns. Scania stock gained 1.3 percent to 236.5 crowns.
Volvo's move marks the latest in a long series of strategic stockpilings of Scania shares, with much of the activity following Volvo's sale of its car unit in January to number-two U.S. automaker Ford Motor Co. (F) for $6.45 billion.
Volvo has vowed to use the cash windfall from the sale for strategic acquisitions aimed at beefing up its industry position in heavy trucks and buses. Scania is seen as a potentially crucial cog in this growth stratagem.
Scania is one of the world's leading heavy-truck and bus manufacturers. But in Sweden, it is second to Volvo, with 95% of its $5.6 billion in sales coming from other countries.
Volvo is the third-leading truck maker globally, behind DaimlerChrysler (DCX) and PACCAR. It enjoys a 12 percent market share in the U.S. and has been intent on expanding into emerging market pockets, especially in Brazil and Ukraine.
Before Friday's move, Volvo had spent more than $620 million incrementally building its stake in Scania. It has gone from holding just under 13 percent early in the year to 13.8 percent on Thursday and a little over 15 percent on early Friday, prior to the after-hours portfolio addition.
With each nibble of Scania stock, Volvo has left the door open to further purchases, provoking the ire of Investor.
The Wallenberg family is said to consider Volvo's advances as a foil to their own desire to nurture an alliance between Scania and another major company, such as Germany's Volkswagen or DaimlerChrysler.
Scania itself has called Volvo an "extremely poor" merger partner.
An "undesirable" partner
Investor has been no less vehement in heaping on the scorn, calling Volvo "undesirable" and "unsuitable," and claiming its encroaching bid for control "creates negative effects for employees, for customers and for shareholders."
Volvo said Monday it had acquired 19.8 million class-A and more than 20 million class-B shares in Scania so far this year. With the acquisition, Volvo increased its stake in Scania to 20.04 percent of voting stock and 20.94 percent of capital.
At that level, Scania will be accounted for as an associated company to Volvo, and Volvo's share in Scania's earnings will be included in Volvo's income statement.
Analysts doubt that Volvo will launch a takeover bid for Scania, given its budget constraints, even with the Ford sale. Yet Investor would be likely to reject an outright bid as too low, they add.
Nonetheless, industry watchers say Volvo is keen on boosting its profile within the industry -- and having an influential voice on Scania's business strategy plays into those ambitions.
At 25 percent of Scania stock ownership, Volvo would begin to collect Scania dividends tax-free.
--from staff and wire reports
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