FRANKFURT/STOCKHOLM Volkswagen's (VOWG_p.DE) drive to strengthen its trucks business spooked shareholders on Monday, who balked at a generous 6.7 billion euro ($9.2 billion) offer to buy the rest of Sweden's Scania, as well as at the carmaker's cautious 2014 outlook.
The plan to take full control of Scania SCVb.ST aims to reinvigorate an eight-year attempt to forge a truck alliance between Volkswagen (VW), MAN SE (MANG.DE) and Scania and build a global truck business to rival that of Daimler (DAIGn.DE).
VW shares dropped as much as 7.5 percent after Europe's biggest carmaker said late on Friday it would seek to raise up to 2 billion euros from holders of preference shares and up to 3 billion euros of hybrid capital to help it buy the 37 percent of Scania it does not yet own.
It also said its 2014 operating margin could be within a range of 5.5-6.5 percent, compared with 5.9 percent last year and analysts' mean forecast of 7.4 percent in Thomson Reuters data.
"For a long while, VW's endless European market share gains, constant success with (premium car brand) Audi, magical claims for the potential of MQB (modular platforms) and stated ambitions for global dominance combined to convince many that this was The World's Best Auto Stock," analysts at Bernstein Research said.
"But such optimism has faded - VW has now disappointed the market quite a few times. 2014 will represent the fourth year of flat earnings in a row," they added.
UBS analysts affirmed their "sell" rating on the stock, saying Friday's news supported their concerns about muted earnings growth at VW as well as the pace at which the company was adding capital and constraining returns.
After just 30 minutes of trading on Monday, the volume of VW shares that had changed hands was more than the stock's daily average volume of the past three months, and the stock was down 6.7 percent at 187.45 euros at 9.00 a.m. ET.
That was the biggest decline by a European blue-chip stock .FTEU3 and contributed to a 1.3 percent decline in the STOXX Europe 600 Automobiles & Parts Index .SXAP.
Scania shares, meanwhile, were up 32 percent at 195.00 Swedish crowns, slightly below VW's 200 crowns per share bid.
The bid puts Scania's enterprise value - equity plus debt - at 16.7 billion euros or 12.6 times estimated 2016 earnings before interest and tax. That represents a 29 percent premium to the European machinery sector in general and a 56 percent markup on rival truck maker Volvo (VOLVb.ST), according to Thomson Reuters StarMine.
Nonetheless, Swedish pension funds, some of which have complained about what they see as VW's heavy-handed treatment of Scania's minority owners, gave a mixed reaction to the bid.
Nordea Funds, with around 0.7 percent of Scania shares, said the offer was attractive and it would accept it, whereas Skandia, which holds around 0.9 percent, said it would not accept the bid.
State-controlled pension fund AP4 said it was a "delicate task" to evaluate it, and did not take a stance for or against.
Moving to block the bid and hold out for a higher offer could be risky, however, as VW could revert to running Scania without full control, depriving minority owners of the big short-term windfall from the bid.
VW and MAN together hold large stakes of voting-strong A shares in Scania under Sweden's dual share system, giving them nearly 90 percent of votes in the company.
Swedish institutional owners last year forced Lindengruppen to raise its bid for industrial firm Hoganas, but ownership in that firm was less scattered than it is in Scania, meaning it would take cooperation by many more owners this time to add up to the 10 percent needed to block a bid.
In 2008, private equity firm Triton walked away from its bid on information distributor Cision CISI.ST after opposition from Skandia Liv and AP4.