Swedish pride at stake in truck race

Next month, it should finally become clear who will win the battle for control of Swedish truckmaker Scania. Ever since German group MAN launched its €9.6 billion hostile takeover bid for the company last month, the business world has been rife with speculation over which way the deal will go.

Go-between Volkswagen, a major shareholder in both MAN and Scania, has given the companies until 17 November to reach an increasingly unlikely agreement. With Volkswagen leaning heavily in favour of MAN, however, Scania is having great trouble holding its own.

The deal, say observers, is a foregone conclusion. Volkswagen, which owns a 34% stake in Scania, bought a 15% stake in MAN after rejecting the latter’s bid for the Swedish truckmaker. Having established itself as the biggest shareholder in both companies, the carmaker announced its intention to broker a tie-up that would benefit all parties. It seems clear, however, that far from being a neutral negotiator, Volkswagen’s sympathies lie with German compatriot MAN.

Scania executives faced with the might of the two German companies will have been negotiating through gritted teeth. MAN chief executive Håkan Samuelsson and his counterpart at Volkswagen, Bernd Pischetsrieder, have effectively ganged up in a bid to create a truckmaker bigger in size than current European market leaders DaimlerChrysler and Volvo. The terms of the deal, it would appear, have already been hammered out. Operations of the merged companies would be combined with Volkswagen’s Brazilian truck business. Should Scania refuse, MAN will pursue a hostile takeover.

In some quarters the battle is being billed as a clash between Germany and Sweden. The description is accurate in part. The collaboration between MAN and Volkswagen, the latter protected by law from foreign takeovers, certainly does not harm German industrial policy. The main obstacle now lying in the way of the grand scheme has been described as Swedish pride. Volkswagen and MAN will now have to overcome the objections of the powerful Wallenberg family, another major shareholder in Scania with a stake of 19%, at a time when the Swedes are still smarting from the sale of major motor industry assets (Volvo’s car division and Saab were sold to US companies in the 1990s). "It’s the Germans against the Swedish," says analyst Robert Heberger at German investment bank Merck Finck. "The Germans want to take the leading position within the new group."

The best Scania can hope for, should talks collapse, is an increased offer from MAN. Signs are that it is holding out for just that, having announced plans to issue a sizeable special dividend to shareholders later this year that would act as a poison pill defence forcing MAN to raise its offer of 474 kroner (€51.45) per share. "If MAN were to increase the bid, say to 500 kronor (€54.27) per share, I assume they would agree," says Heberger. He warns, however, that failure to win the confidence of Scania’s management will make it difficult to achieve synergies between the two companies. "The worst case scenario for MAN would be if they had to pay a high price, but without the support of Scania management. Then the deal will have been overvalued."

The main point of securing what amounts to a three-way deal would be to increase efficiency of operations. "The logic of it all is that you need to be big enough to fund R&D investments and the cost of operating in a global environment," says Toby Procter, director of Trend Tracker, an organisation specialising in automotive industry research.

MAN would stand to gain access to US markets through Scania and the merged entity could enter Latin American markets through Volkswagen’s Brazilian operations. Still, it remains questionable how worthwhile the project would be. "I think the notion of bigger is better is beginning to run out of steam," says Procter, pointing out that size is no guarantee of success. Indeed, although MAN, currently the third largest truck maker in Europe, sells more than Scania, the profitability and market value of the two companies are, in fact, similar.

In a strange twist, the figurehead of the merged entity is likely to be MAN boss Samuelsson, a Swede who spent 23 years at Scania before moving to MAN in 2000. "I suspect that some of the crisp responses from Scania to this bid might stem from that," says Procter. It seems fair to conclude that the indignity of being crushed by two German companies is made all the worse for the dependable, century-old Swedish player by the fact that one of its former executives is leading the charge.

Next month, it should finally become clear who will win the battle for control of Swedish truckmaker Scania. Ever since German group MAN launched its €9.6 billion hostile takeover bid for the company last month, the business world has been rife with speculation over which way the deal will go.