Suzuki Motor Says it Will Buy Back Volkswagen Stake as Court Settles Feud

31 Aug 2015 | Author: | No comments yet »

Suzuki Motor to buy back Volkswagen stake as court settles feud.

Volkswagen will sell a Suzuki stake valued at about 463 billion yen (€3.4bn) following a decision from arbitrators that ended a four-year dispute over a failed partnership between the two firms. Shares in Suzuki Motor Corp jumped 4.6 percent early on Monday as investors cheered the settlement of a years-long dispute between the Japanese automaker and Volkswagen AG in an international arbitration court.

After four years of dispute, arbitrators upheld Suzuki’s request to terminate a 2009 agreement that failed to yield a single joint project with the German company. VW will sell its 19.9pc holding after the arbitrators upheld the Japanese automaker’s request to end the cooperation, the companies said in separate statements yesterday. The ruling, announced on Sunday, said the German auto giant must sell its 19.9 percent stake in Suzuki – a result the Japanese small-car maker had sought with its court filing in November 2011. That still outperformed a 1.2% decline in the benchmark Nikkei average. “While we believe investors might react favourably to news of the share buyback, we basically think all of this is already priced in,” JPMorgan analyst Akira Kishimoto wrote in a report.

VW said in a statement it would not know the impact on its balance sheet or profits until it has coordinated the sale of the Suzuki shares. “We have already retained an investment bank and will in the next few days consult with the bank and our lawyers over the next steps to be taken.” US hedge fund mogul Daniel Loeb urged Suzuki to cancel the shares it buys back, saying the auto maker has enough cash on hand and should avoid issuing equity. Rather than pursue other partnerships, Suzuki should focus on its India operations and Maruti subsidiary, said Daniel Loeb, whose hedge fund Third Point LLC disclosed in July that it bought a stake in the carmaker. “Any potential partner would be quite worried about what sort of partnership it would have with Suzuki after what happened with VW,” said Ashvin Chotai, managing director of researcher Intelligence Automotive Asia. “The culture of Suzuki is not very conducive towards working in a joint venture.” Suzuki fell 0.8 percent to 4,118 yen as of 11:09 a.m. in Tokyo trading, after earlier gaining as much as 4.6 percent.

Takaki Nakanishi, chief executive of Nakanishi Research Institute, which specializes in the automotive industry, said it was “highly likely it will buy back at the Friday closing price.” Loeb did not mention other specific measures he expected from Suzuki but said he saw a cancellation as a “first next step”. While he and his research team haven’t contacted or met with Suzuki management, Third Point plans to continue holding the company’s shares, which he called “extremely cheap.” The goal of the pact with VW was to cooperate on small, fuel-efficient cars for emerging economies, providing Suzuki with access to technology while giving VW a wider role in the Indian market through Suzuki’s business there. He said he would be happy to meet with management to discuss other “shareholder-friendly steps” to better allocate capital, adding that he had no plans to sell the shares yet. “At this valuation we’re happy to continue holding,” he said.

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne, who is prodding the auto industry to consolidate, has expressed interest in talking with Suzuki in the past. Fiat wasn’t available to comment outside regular office hours on Sunday. “Suzuki will certainly enter into partnerships, but to do that they don’t have to get married,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “Scale isn’t the secret to happiness.” The Hamamatsu-based manufacturer may instead focus on targeted development projects in areas such as fuel cells and autonomous driving, said Takaki Nakanishi, an auto analyst at Jefferies Group LLC.

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