March 18, 2014 / 7:26 AM / in 4 years

RPT-UPDATE 2-Independent Scania board members reject VW bid

* Members without ties to VW recommend shareholders reject bid

* Say does not reflect full value of Scania

* VW offered 200 SEK per share; Scania ended Monday at 195.9

* Recommendation a setback for VW’s global truck ambitions

* Scania shares fall 4.3 pct, VW down 0.1 pct (Repeats to add link to Breakingviews)

By Niklas Pollard

STOCKHOLM, March 18 (Reuters) - Scania’s minority shareholders should reject Volkswagen’s 6.7 billion euro ($9.3 billion) bid, the Swedish truckmaker’s independent directors said, underlining a deep rift within the company.

The recommendation by the members of Scania’s board with no direct links to VW is a setback for the German automaker, which is trying to forge a closer-knit trucks group capable of taking on market leaders Daimler and Volvo .

The committee’s rejection is likely to fuel opposition to the bid, which has met with a mixed and mostly non-committal response from minority owners, primarily Swedish pension funds and other financial institutions.

Volkswagen, which with subsidiary MAN has 62.6 percent of the capital and 89.2 percent of votes in Scania, last month offered to buy out minority shareholders for 200 crowns ($31.5) per share, in an attempt to draw a line under years of tense relations with them.

The independent committee said on Tuesday that VW’s offer was too low and did not reflect Scania’s long-term prospects, its growth outlook, technological excellence and the potential for savings within a merged group.

“Scania is a world leader in its industry and the Committee has strong faith in the business plan set out by the company,” said Asa Thunman, the committee’s chairwoman.

When VW made its offer last month, the carmaker said a full tie-up with Scania should generate savings of at least 650 million euros per year from joint development and other steps and that it may take at least 10 years to achieve the full potential.

The committee said that timescale was “conservative.”

Scania’s flexible production system and strong profitability has for years been the envy of the European truck industry.

The company expects the benefits from heavy investments in its truck models and growing sales of high-margin service contracts to bolster profitability further in the coming years while aiming for a target of doubling output by 2020.

The committee, which includes a member of Sweden’s Wallenberg business family and union representatives, acknowledged that spurning the bid could hurt for the stock in the short term.

Scania shares were 4.3 percent lower at 187.5 crowns by 1035 GMT while VW was down 0.1 percent.

“In short, we believe this slightly increases both the risk for a bid failure and the likelihood for a slight increase of the bid offer,” analysts at Swedish bank SEB said in a note to investors.

The board members also highlighted the risk of job losses at Scania, based in Sodertalje south of Stockholm, pointing to job protection deals struck between MAN and German labour unions. Swedish unions have struck no such deals with Scania.

VW was not immediately available for comment.

“You can always chose assumptions that will back your point of view. But from a VW shareholder point of view I have to say that Volkswagen’s Scania bid is more then generous,” said Juergen Meyer fund manager at SEB Asset Management.

VW’s bid values Scania at around 13 times forecast earnings, while Volkswagen trades at 3.6 times according to Thomson Reuters data.

Still, rejecting the offer carries risks as Volkswagen’s solid majority of votes enables it to ignore the demands of minority shareholders in pursuit of its stalled eight-year effort to create Europe’s largest trucks group.

The committee and company management also painted a modestly rosy picture of the truckmaker’s performance in the near term, saying Scania truck orders for the first two months of 2014 were in line with the same period last year and up compared to the fourth quarter of 2013. ($1 = 0.7180 Euros) ($1 = 6.3511 Swedish Crowns) (Additional reporting by Johannes Hellstrom and Helena Soderpalm in Stockholm; Edward Taylor in Frankfurt; Editing by John Stonestreet and Alistair Scrutton)

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