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Volvo, Mitsubishi link
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October 8, 1999: 1:09 p.m. ET
Truckmakers to swap 5% stakes, establish new production venture
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LONDON (CNNfn) - Swedish commercial vehicle maker AB Volvo is teaming with Japan's Mitsubishi Motors to create the world's biggest truck and bus group.
The companies announced Friday that they would buy up to 5 percent of each other's stock and also invest in planned spin-off of Mitsubishi's truck and bus business.
Together with Volvo's planned $7.5 billion acquisition of Swedish truckmaker Scania AB, the resulting company would supplant DaimlerChrysler as the world's largest truck and bus maker, Mitsubishi Motors President Kalsuhiko Kawasoe said.
The deal would give Volvo a new product line in the light and medium truck range and better access to the fast-growing Asian market.
The companies are linking up not only to save costs and gain synergies but because they need to be bigger in the rapidly restructuring auto industry.
"We simply had to make up our minds to do something bigger and better than what was before and that's what we did," Volvo Chief Executive Leif Johansson said.
The news was welcomed in Tokyo, where Mitsubishi stock soared 11.9 percent. Volvo stock closed down 0.4 percent.
The companies are expected to sign a formal agreement by the middle of December, the Wall Street Journal reported.
Under terms of the deal, Volvo will buy 5 percent of Mitsubishi Motors for the equivalent of $270.5 million through a new stock issue while debt-laden Mitsubishi will buy one percent of Volvo on the market now and a further four percent if its resources allow by 2002, worth close to the equivalent of $620 million.
In addition, Mitsubishi will spin off its truck and bus business into a separate unit in which Volvo will acquire a 19.9 percent stake, officials added. The new venture, likely to be named Mitsubishi Truck, will be set up by the end of 2001 and employ around 6,000 people.
The deal with Japan's fourth largest auto maker is Volvo's latest step in a radical reengineering in recent months as it focuses on the high-margin commercial vehicle business.
Earlier this year it sold its best known business, Volvo Cars, to U.S. automaker Ford and a few months later won agreement to buy Scania for the equivalent of $7.5 billion, creating Europe's biggest truckmaker, the second biggest in the world after Daimler Chrysler.
Although some industry analysts contend more deals could be in store, Johansson doused speculation that Volvo would seek another big acquisition in the sector. Swedish newspapers have reported it was seeking the truck business of France's Renault, especially its North American brand Mack.
However, he added that the new deal opens up further possibilities for cooperation with Mitsubishi.
--from staff and wire reports
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Volvo
Mitsubishi Motors
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