July 25, 2008 / 8:20 AM / in 9 years

Daimler in talks to buy stake in Kamaz

STUTTGART, Germany (Reuters) - Daimler AG (DAIGn.DE), the world’s biggest maker of commercial vehicles, is in talks to buy a 42 percent stake in truckmaker Kamaz (KMAZ.MM) as a way to boost sales in the fast-growing Russian market.

Russia is now Europe’s largest truck market and Kamaz is the top player, with a market capitalization of nearly $4 billion. It builds nearly three quarters of the country’s dump trucks and about half of its other large cargo vehicles.

“Along with the option of building a new factory for local assembly of Daimler Trucks, the division is also studying the possibility of acquiring a stake in ... Kamaz that would enable the two companies to combine their development, production, and sales expertise,” the company said in a statement.

Reuters had earlier cited a source familiar with the situation as saying that Daimler planned to take a stake in Kamaz, seizing opportunities in the Russian truck market more quickly than it could by setting up its own production.

A 42 percent stake in Kamaz would be worth about $1.7 billion at the current share price.

Daimler shares, which fell nearly 10 percent on Thursday after it cut its 2008 earnings outlook, closed up 1.1 percent at 38.88 euros on Friday, in line with the DJ Stoxx European autos sector index .SXAP.

The stock has lagged the index by 20 percent this year.

Kamaz shares were down 2.3 percent at 129 roubles in Moscow.

“This looks like a good strategic fit. Kamaz is a key player in a market where Daimler has a limited presence,” said Michael Tyndall, an automotive sector analyst at Nomura in London.

He noted that revenues at Kamaz are growing strongly and margins, while relatively light, have been improving.

“The big question is price. On an EV/Sales of 0.9x (20 percent above the peer average) and based on consensus forecasts we would expect Daimler to pay roughly 1 billion euros for 42 percent,” he estimated.

Daimler intends to build the initial stake of 42 percent to a majority in the medium term, the source had said.

Daimler could make a binding offer by mid-October for Kamaz, the source said, adding the deal for the initial stake could be wrapped up by the end of October.

Daimler said a decision was due by the end of the year.

“I think some investors will appreciate that Daimler is looking for -- and finding -- ways to use its cash pile to generate earnings growth rather than (only) buying back stock,” Nomura’s Tyndall said.

Russian investment bank Troika Dialog said in June it had invited potential buyers including Volvo (VOLVb.ST) of Sweden, Fiat FIA.MI unit Iveco and Daimler to bid for its minority stake in Kamaz.

Daimler has since given two non-binding offers, the source said.

    The head of Daimler’s trucks business, Andreas Renschler, had publicly played down any interest in taking a stake in Kamaz.

    Sources close to Kamaz have said in the past the company was looking to sell a minority stake to a strategic investor as one alternative for its development. The other options were a secondary public offering of shares and a merger with Belarussian truck manufacturer MAZ.

    Kamaz trades on Moscow’s MICEX and RTS exchanges but has no foreign listing.

    Its 2007 revenue rose about 23 percent to 85.25 billion roubles ($3.65 billion) as truck sales volumes increased by 20 percent.

    It sold 52,648 trucks last year, of which 39,187 vehicles were domestic sales.

    Daimler sold 467,700 trucks in 2007 plus 39,000 buses.

    “With its potential for dynamic growth, the Russian truck market is widely considered to be one of the top future sales markets for commercial vehicles,” Daimler said.

    It noted that Russia is already Europe’s largest truck market, with 2007 sales of more than 154,000 trucks weighing more than six tonnes.

    “Sales of new trucks in Russia are expected to increase by about 20 percent over the next two years. This development is being driven by the demand for heavy-duty trucks in particular,” it said.

    Reporting by Hendrik Sackmann; Editing by Jason Neely and Erica Billingham

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