Volkswagen set to buy up to 20% Suzuki stake

Volkswagen set to buy up to 20% Suzuki stake

TOKYO/FRANKFURT: Volkswagen AG plans to take a stake of up to 20 percent in Suzuki Motor Corp, providing Suzuki with a much-needed development

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partner and giving VW access to better small car technology. Three sources with direct knowledge of the negotiations told Reuters of the impending deal.

One said German group VW's stake could "easily" rise to a controlling holding of more than one-third in future. "An announcement could come as early as this week," the source said. "This is the first step." A 20 percent stake in Suzuki would be worth about 250 billion yen ($2.80 billion) at current prices, according to Reuters data. Spokesmen at Volkswagen and Suzuki had no comment.

Executives at Volkswagen, the world's third-largest automaker, have publicly said over the past half year that Suzuki would be an interesting target given its expertise in smallcars -- a key segment to compete in emerging markets. Suzuki, Japan's fourth-largest automaker, for its part, has said it would welcome any partnership that made sense after losing its ties to General Motors Co, which it had relied on for help with hybrid and other next-generation technology.

Suzuki, which dominates the Indian market, as well as the unique Japanese segment for 660cc minivehicles, has a market capitalisation of $13.7 billion, against Volkswagen's $45.7 billion. Suzuki holds 20 percent of itself in treasury stock, bought back from GM between 2006 and 2008.

While Volkswagen's overtures to Suzuki have become common knowledge within the industry, the move comes as a surprise after Suzuki Chief Executive Osamu Suzuki had categorically denied any talks of a tie-up as recently as last month.

On the other hand, the septuagenarian CEO, who is also chairman and president of the company founded by his wife's grandfather, has often and openly said his "small" company needed a partner to survive the fierce competition washing over the industry.

STRAIGHT TO THE TOP?

Volkswagen, with its 10 brands including Audi, Skoda, Seat and now Porsche, has said it wanted to become the world's No.1 automaker by 2018 -- a goal it would reach with relative ease if Suzuki became a subsidiary. Unlike No.1 automaker Toyota Motor Corp, the Wolfsburg-based company has only a 2 percent share of the U.S. market but is dominant in the expanding markets of China and Brazil.

Volkswagen is said to want Suzuki's know-how to develop a minicar platform for the Up! concept car, or use Suzuki's existing platform outright. Automakers are in the midst of realigning themselves in a wave of consolidation that many saw as inevitable given chronic overcapacity and a tough sales environment amid the worst industry downturn in generations.

The bankruptcy of Chrysler this year was twinned with a link-up with Italy's Fiat SpA, while Chinese automakers are looking to buy into brands on sale from GM and Ford Motor Co. Still, many viewed Suzuki, with its enviable expertise in small cars and overwhelming lead in India through unit Maruti Suzuki India Ltd, as being reluctant to coming under any carmaker's control. But the CEO Suzuki, who turns 80 next month, had struggled to find a successor after the death two years ago of his son-in-law whom he had been grooming for the top job.

Volkswagen buys 49.9% in Porsche for $5.8 bn Volkswagen said the combination of the two companies follows a compelling strategic, industrial and financial logic and the move is expected to help it gain around € 700 million in annual operating profits in the long term. “The Stuttgart-based car maker will allow Volkswagen to further expand its position in the premium business, which offers particularly strong earnings,” Volkswagen said in a statement. “As a result, the annual operating profit of the Volkswagen Group is expected to increase by some € 700 million in the long term,” it added. Volkswagen said that with return on sales of 10.3%, Porsche is the world’s most profitable automobile manufacturer. It said: “The acquisition of the trading business of Porsche Holding Salzburg is planned for 2011. The creation of the integrated automotive group is then to conclude with the merger of Volkswagen and Porsche SE during the course of the same year.” Last week, Volkswagen shareholders approved the proposal for issuing 135 million new preference shares, a move aimed at ensuring greater financial flexibility prior to the company’s proposed merger with Porsche.