Suzuki files for arbitration in VW dispute

TOKYO/FRANKFURT Thu Nov 24, 2011 7:46am EST

The Volkswagen logo is seen on display at the New York International Auto Show in New York City, April 20, 2011.  REUTERS/Mike Segar

The Volkswagen logo is seen on display at the New York International Auto Show in New York City, April 20, 2011.

Credit: Reuters/Mike Segar

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TOKYO/FRANKFURT (Reuters) - Suzuki Motors (7269.T) has filed for international arbitration in a bitter dispute with Volkswagen AG (VOWG_p.DE) after the German automaker refused to sell back its 20 percent stake in the Japanese company.

Suzuki, a specialist in building small cars profitably for emerging markets, said on Thursday it initiated arbitration procedures with the International Chamber of Commerce International Court of Arbitration in London.

A spokesman for Volkswagen reiterated that the company believed there was "no legal basis whatsoever obliging us to surrender our shares."

"We feel confident and are not unduly concerned about the proceedings," the spokesman said.

Despite the embarrassment of a key strategic partner like Suzuki filing for divorce, analysts said Volkswagen's long-term plans to penetrate the India and Southeast Asia were not solely dependent on the much smaller Japanese carmaker.

"We see no major financial impact based on the current share price, as VW has already booked a burden of 263 million euros ($351 million) in Q3/2011 as a result of the reclassification of its Suzuki stake in the balance sheet," DZ Bank analyst Michael Punzet wrote in a research note.

Accusing its German partner of withholding hybrid technology it promised to share, Suzuki on November 18 declared its two-year alliance with the German company over and demanded a return of the 19.9 percent stake VW bought for about 1.7 billion euros in January 2009.

WAIT FOR CHANGE

The German company reiterated its refusal that same day and Suzuki said it was prepared to go through an arbitration process that could take up to two years.

Volkswagen's chief executive, Martin Winterkorn, said in an interview Monday with a German newspaper that he was patient and prepared to wait.

"We won't sell our Suzuki stake. If the current management at Suzuki doesn't want to work together with us, then maybe the next generation will," the VW boss said.

NordLB analyst Frank Schwope said VW had no financial need to act, as long as the arbitration court does not force VW to sell its shares back to Suzuki, since the German company is sitting on more than 21 billion euros in net cash.

Instead, it could sit back and wait.

"Volkswagen should be interested in retaining its holding simply to ensure no other competitor like Fiat takes a stake in Suzuki. Volkswagen's patience lasted nearly 10 years with truckmaker Scania before the voting stake could be raised to the current 71.8 percent," he said in a note on Thursday.

VW has more problems than just Suzuki. The European Commission is taking Germany to court again over a law that protects state interests at Volkswagen.

Suzuki shares closed up 0.9 percent at 1,533 yen, compared with a 0.9 percent drop in the Tokyo exchange's auto subindex .ITEQP.T. Volkswagen was up 2.6 percent at 115.60 euros at 1203 GMT.

($1 = 0.7490 euros)

(Additional reporting by Edmund Klamann; Editing by Edwina Gibbs, Matt Driskill and Jodie Ginsberg)

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