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News > International
Volvo, Renault link trucks
April 25, 2000: 10:47 a.m. ET

Firms unveil $1.4B combination of truck divisions; Renault to own 20% of Volvo
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LONDON (CNNfn) - Volvo and Renault on Tuesday unveiled an alliance to create the world's second-largest truck maker, announcing plans for Volvo to acquire Renault Véhicules Industriels (RVI) in a deal valued at 1.5 billion ($1.4 billion).
    
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Renault will swap its truck division for a 15 percent stake in Volvo, and promised to take its holding in the Swedish truck and bus company up to 20 percent by buying shares on the stock market.
    Stock in both companies surged on the news. Renault (PRNO) jumped 5 percent to 48.30 in Paris, and Volvo rose 8 percent to 216 crowns in Stockholm.
    "This is a win-win deal, although it's more of a win situation for Volvo," Greg Melich, European auto analyst at Morgan Stanley Dean Witter, told CNNfn.com. He pointed out the price of four times operating earnings included no real takeover premium, although from Renault's point of view, "it has got out of a business which wasn't core, and didn't have scale."
    The enlarged company would have annual revenue of 14.5 billion. 
    "This strategic move would give Volvo and Renault together around 25 percent of the American and European markets and a significant presence in other regions of the world, such as Latin America and Asia, " the French firm said in a statement. The deal will generate a capital gain of some 1 billion for Renault, and it will have two representatives on Volvo's board. The enlarged firm will keep all the truck brands and factories owned by both partners, which said they don't expect to shed any jobs.
    graphicPrevious efforts to combine the whole of Renault with Volvo foundered in 1993, after Swedish shareholders appeared unwilling to hand over control of one of the country's prime industrial assets, in exchange for a minor stake in a company that would have been dominated by the French state. Renault was privatized three years later.
    Volvo sold its car division to Ford Motor Co. (F: Research, Estimates) in early 1999 to concentrate on heavy trucks, but its strategy hit a roadblock when European competition regulators vetoed a planned $7 billion merger with Scania in March. Volvo had aggressively pursued its Swedish rival, and retains a 46 percent stake.
    The collapse of the Scania deal left Volvo's strategy in tatters, with some analysts saying the company could itself become a takeover target as the number of European bus and truck manufacturers consolidates. graphic
    Other players with ambitions in the sector include German heavyweights DaimlerChrysler (FDCX) and Volkswagen (FVOW). VW made a raid on Scania last month, buying 19 percent of the firm for $1.6 billion.
    RVI includes trucks built under the Renault name, as well as vehicles sold in North America with the Mack badge. In 1999 Renault's commercial vehicles business sold 72,000 trucks, generating revenue of 6.5 billion and operating profit of 220 million, up from 172 million in 1998.
    In the same year, Volvo's truck division sold 85,000 trucks, making operating profit of 3.9 billion crowns on revenue of some 70 billion crowns. The truck division accounted for just over half the company's total revenue. Volvo's other products include buses, construction equipment and marine engines. Back to top

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