Auto dealmaking in 2010 could rise on recovery

PARIS (Reuters) - The value of overall automotive dealmaking could grow next year as more carmakers try to spread heavy investment costs for new technology over a greater number of production volumes, a Nomura investment banker said.

"I really expect that we'll see a significant volume in M&A again in 2010, both on a manufacturing side and even more so on the supplier side," Nomura's head of European automotive mergers and acquisitions, Klaus Pflum, told the Reuters Auto Summit.

According to Thomson Reuters data, the value of announced deals both in equity and debt for the global automotive sector surged to $115 billion this year, although roughly half stems from the June 1 reorganisation of General Motors GM.UL.

"Given that we will see some recovery in 2010, the volume might increase," he continued, cautioning however that there could be a lot of noncash deals given the tough financing climate and desire for companies to preserve their liquidity.

On Monday, parts supplier Faurecia (EPED.PA), for example, agreed to buy U.S. emissions control specialist EMCON for an undisclosed sum to be funded through a stock sale.

Below is a list of the biggest deals announced this year in the sector based on data from Thomson Reuters. Except where noted all deals are valued for 100 percent of equity and debt.

TOTAL VALUE TARGET ACQUIRER

$55.3 bln General Motors Co U.S., Canada, UAW

$18.5 bln Dr. Ing. h.c. F.Porsche AG Volkswagen

$11.0 bln Delphi Creditors

$ 9.6 bln Volkswagen (17 pct of votes) Qatar

$ 5.1 bln Porsche Holding, Salzburg Volkswagen

$ 2.7 bln Daimler (9.1 pct) Aabar AABAR.AD

$ 2.5 bln Chrysler Group LLC U.S., Canada, UAW, Fiat

$ 2.2 bln Ford debt for equity swap

$ 1.1 bln Hyundai Motor Hyundai Mobis ups stake to 21 pct

$ 1.0 bln Opel Vauxhall (55 pct) Magna, Sberbank

Pflum said to watch out for a potential deal between Peugeot (PEUP.PA) and Mitsubishi (7211.T). Fiat (FIA.MI) could also eye Mazda (7261.T), Renault-Nissan (RENA.PA)(7201.T) might look to partner with Ford (F.N) and Daimler (DAIGn.DE) may strengthen its ties with BMW (BMWG.DE) under other conceivable scenarios.

While VW (VOWG.DE) may have its hands full with the planned integration of sports car maker Porsche AG (PSHG_p.DE), VW Chairman Ferdinand Piech and his boardroom allies have made no secret that they are looking at Suzuki (7269.T) as well, despite the Japanese automaker denying talks on Monday.

"There are a lot of people out there who would like to own Suzuki, because I would say it's the only company right now that can profitably produce small cars. They have a very strong cost culture, maybe the strongest in the industry," he explained.

Pflum said Suzuki is excellently positioned in upcoming growth markets like India, Malaysia and Indonesia where it sells small cars and small pickups like the Swift, Alto or Jimny. Nevertheless he believes it needs access to new powertrains like hybrids, electric drives and even modern diesel technology.

"If (Piech) wants to do something with Suzuki on a minority basis, that is something which would be more affordable and where rating agencies would give them more credit because there could be immediate cost synergies," the Nomura banker said.

"It would be quite a disaster if VW were to lose its 'A' rating," Pflum continued, adding that is why he does not expect the full takeover of German truckmaker MAN (MANG.DE) soon.

German tyre and electronic brakes supplier Continental (CONG.DE) could also acquire Schaeffler's automotive operating assets consisting of LuK clutches or INA rolling bearings and float its own Rubber Group to pay for the bill.

He believes an initial public offering (IPO) might actually raise more money than an outright divestment to a strategic or financial buyer: "I don't see any banks who are willing to finance a four to five billion euro debt ticket."

VIOLENT UNREST

Pflum believes the crisis in the auto industry will force carmakers to look beyond simple cooperation to actual cross-shareholdings or full-fledged mergers where they can immediately begin to restructure aggressively and develop joint platforms. Daimler's merger with Chrysler and BMW's acquisition of Rover failed in part because they allowed the businesses too much independence early on.

"People were buying companies or shares in companies without managing it too actively ... this doesn't make a lot of sense," he said. He acknowledged that deals may be easier to arrange when both sides can coexist, but this presents problems later on.

The big question, then, is whether management can actually succeed in achieving enough savings to offset the increase in complexity that arises whenever one merges long-standing corporate cultures that jealously guard their independence.

"I once proposed to a German and a French company to do a merger that made all the sense in the world on paper. But a CEO asked me at the time 'How would you culturally manage that, how would you get synergies out and how would you motivate the people?'," Pflum conceded.

Due to strident opposition by labor and politicians, the fundamental problem of closing inefficient, high-wage plants that employ thousands of workers organised tightly into trade unions will remain despite the industry's precarious situation.

Continental's decision in March to close its French tyre plant in Clairoix sparked massive unrest this year, for example.

"In France and Italy property was destroyed and people were taken hostage. I'm pretty sure it's getting more difficult then (to close sites), since more people are employed in the car industry and violence could increase -- so if you talk to some of the CEOs, they are very nervous about shutting plants down."

Fiat's acquisition of a 20 percent stake in Chrysler could serve as a model for future deals. They plan to manufacture models from one brand at the other's production plants while also cross-selling exported cars through their respective distribution channels to better utilize capacity both in the U.S. and Europe.

(Additional reporting by Helen Massy-Beresford, Paul Taylor, Matthias Blamont, Gilles Guillaume, Leila Abboud and Lionel Laurent; Editing by Phil Berlowitz)