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Volvo seeks $5B Scania deal
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January 15, 1999: 9:03 a.m. ET
Swedish firms set to create Europe's largest bus and truck maker
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London (CNNfn) - Swedish vehicle group Volvo snapped up a 12.85 percent stake in rival Scania Friday, and said it will seek a merger of the two firms to create Europe's largest manufacturer of buses and heavy trucks, worth approximately $18 billion.
Analysts said the move indicates the growing emphasis at Volvo on its trucks and buses business at a time when the company is debating whether to sell its car division or seek an alliance with a larger auto maker.
Volvo's stake in Scania comes amid rising expectations of mergers among European car makers to make them better able to compete with U.S. and Japanese manufacturers.
News of the deal sent Scania shares soaring as much as 10 percent to 196 crowns, a rise of 20 crowns. Volvo shares inched up 1 percent to 222 crowns.
Volvo is only a niche player in the car market but it has a commanding position in the heavy trucks business. A merger with Scania would make it the second largest heavy truck manufacturer in the world.
"Volvo is exploring options for its car division and this move (on Scania) could signify an increasing focus on heavy trucks, where it already has a solid market position,'' according to Gilly Filsner, senior automotive analyst at industry research group Ludwigsen Associates.
Filsner said Volvo, which produces only 400,000 cars a year, could face increasing pressure on profit margins at its car division in the face of increasing global competition.
Volvo's chief executive Leif Johansson said a merger with Scania would result in a manufacturer with strong brands, significant development resources and large volumes, especially in the key diesel engine area.
"Our analyses of different alternatives show that Scania is a very good alternative for Volvo,'' Johansson said.
Ford (F) has held talks with Volvo about acquiring its car division, which could fill out the top end of the U.S.-based company's product line, sources familiar with the situation said last week.
Rumors have swirled for months that cash-rich Ford, the world's second-largest auto maker, may strike a deal with Volvo.
Analysts said the Swedish company has hired New York investment banker J.P.Morgan to explore the sale of its car business, a sensitive topic in Sweden. The company, which also makes construction equipment and marine engines, is the country's industrial flagship.
Volvo recently confirmed it is also holding discussions with Italian car maker Fiat on a possible tie-up.
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