Renault's exit gives Volvo more freedom to restructure
PARIS/STOCKHOLM (Reuters) - Renault (RENA.PA) has sold its stake in Swedish truck manufacturer Volvo (VOLVb.ST) to invest in its core business and cut debt, giving the Swedish company greater freedom to tackle its own problems in Europe.
The French car maker came close to an outright merger with Volvo in 1993 and had held a stake in the business since 2001, when it sold its trucks division to the Swedish company in return for shares.
Battling a decline that has sent sales near a 20-year low, European automakers have had to slash costs, cut jobs and close plants. Renault has said it does not plan site closures but is seeking union concessions in a nationwide labor deal.
The 1.48 billion euro ($1.93 billion) proceeds of the sale of Renault's Volvo stake will fund domestic and international investments, it said, and reduce automotive net debt, which stood at 818 million euros at June 30.
Renault has set itself a target of achieving positive free cashflow this year even as it revised down its full-year European market forecast to an 8 percent contraction at best.
Rival PSA Peugeot Citroen (PEUP.PA), meanwhile, is scrapping more than 10,000 jobs and a domestic plant to stem losses approaching 200 million euros a month.
INDUSTRIVARDEN STEPS UP
Renault's exit from Volvo leaves Swedish investment group Industrivarden (INDUa.ST) the top shareholder at the world's second-biggest truck maker, a position it extended with the purchase of 10 million of the shares sold by Renault.
Industrivarden said it had bought shares corresponding to 1.2 percent of votes in Volvo, boosting its stake to 18.7 percent after the truck maker converted most of the stock sold by Renault into shares carrying less voting power. The stake would have cost close to 1 billion Swedish crowns ($150 million).
"Given Volvo's leadership position and proven ability, combined with increasing global transportation needs and growing environmental concerns, we see good potential for value creation in our investment," Industrivarden President Anders Nyren said.
Renault shares closed 1.5 percent higher at 40.22 euros, while Volvo's fell 4.3 percent to 91.85 crowns, just below the placement price for the French company's 17.2 percent voting stake.
"We see an opportunity for Renault to benefit from a good valuation on non-core investments and rapidly get back to a positive net cash position, which could ease the refinancing of existing debt or avoid costly new funding," SocGen analysts wrote.
Renault said the block of 138.6 million Volvo "A" shares, representing 6.5 percent of Volvo's capital, was placed at 92.25 crowns per share. This was in the middle of the range of between 91.25 crowns and 93.25 crowns cited on Wednesday by a source familiar with the matter.
Volvo said separately that it had received a request to convert 110 million "A" shares into the more liquid "B" shares - stock giving fewer votes than "A" shares, but which is seen as of more interest to institutional buyers because it is considered to be a more liquid asset.
Several Swedish pension funds are already among Volvo's top shareholders.
EASIER TO RESTRUCTURE
While the timing of Renault's exit was a surprise, Citigroup analysts said: "Volvo's share price, at about 96 crowns, is still near its highs of the year, so we can see the logic in proceeding now."
For Gothenburg-based Volvo, shares of which have risen 30 percent since their June lows, the sale reduces the chances of French politics interfering with its efforts to cope with the deep downturn in Europe, its biggest market.
Volvo's truck brands include the French-based Renault Trucks unit, as well as Mack Trucks in the United States and Japan's UD Trucks.
"We take a positive view on the sale. Any instances where French politics might enter the boardroom are removed, and that will make it easier should they need to restructure," Nordea's Eriksson said.
Renault Trucks has a larger proportion of sales in southern Europe, where the debt crisis has savaged the cyclical demand for trucks to a much greater extent than farther north.
"This means that Volvo gets more room to maneuver, and given the weak demand in the market in the south European markets, more and larger measures may be needed there," Pareto analyst David Jacobsson said.
(Additional reporting by Johannes Hellstrom; Editing by Lionel Laurent and David Goodman)
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