Recently, German automotive giant Volkswagen announced that it is set to take its heavy-truck division called Traton public by the end of this year. In this article I want to discuss the reasons for this deal as well as the overall historical structure of the Traton brand within the Volkswagen framework.
Traton AG, or as it is formerly known Volkswagen Truck & Bus AG, is a wholly-owned subsidiary of Volkswagen AG and a leading global commercial vehicle manufacturer. Its portfolio includes some well-known brands such as MAN, Scania, Volkswagen Caminhões e Ônibus, and RIO. In 2017, Traton Group’s brands sold around 205,000 vehicles in total. Traton’s offering consists of light-duty commercial vehicles, trucks, and buses which are produced at 31 sites in 17 countries. As of December 31st 2017, the Company had a workforce of around 81,000 worldwide across all its commercial vehicle brands.
In particular its MAN and Scania brand have a strong reputation and a good market share. It is worth starting by looking at the history of Traton, and how Volkswagen managed to acquire MAN and Scania, two of the market leaders it the industry. Before 2000, Scania was a 100% subsidiary of the Swedish Saab conglomerate whereas MAN was a publicly traded company. In 2000, Volkswagen acquired 34% of the voting rights of Scania for 3 bn. German Mark (the equivalent of EUR 1.5 bn.), and increased its shareholdings to 38% by 2008. During that time, MAN hold around 20% of Scania, and tried to acquire the remaining shares, valuing the company at EUR 10.3 bn.. However, Scania’s largest shareholders (Volkswagen and the Wallenberg Family) declined the offer. Concurrently, VW increased its share in MAN from 15% to almost 30%. By November 2011, Volkswagen AG became MAN’s majority shareholder by a successful tender offer of EUR 95,00 per share. Six month later, Volkswagen held 75,03% of the voting rights and with that paved a way for a domination agreement. Through the acquisition of the majority in MAN, Volkswagen also increased its holdings in Scania (remember that MAN held 17% of Scania’s voting rights). Because of VW’s acquisition of Porsche (which also held shares in Scania) as well as the 17% from MAN, VW’s share in Scania grew to almost 90% by 2012. In 2014, VW increased that to 100% through a public tender offer at ca. EUR 21,53 a share. So by that year, Volkswagen managed to acquire the rival brands Scania and MAN and made them fully owned subsidiaries of the Volkswagen Truck & Bus AG.
The value creation that this implies can be summarized by one word: synergies.
From now on, teams of MAN and Scania engineers will together develop the core components of the powertrain which in turn will create common platforms for engines, transmissions, axles, and exhaust aftertreatment systems. The management of the cross-brand project will consist of top executives of each of the two companies, ensuring that the requirements of all parties involved are taken into account but that at the same time, the brand's independence is maintained and responsibilities are clearly defined. Each brand is going to be responsible for a specific area in the business: Scania will oversee the production for large engines with 13 liter-capacity, whereas MAN is in charge of smaller units with five- to nine-liter engines. The exhaust system and gearbox system have been broken down in similar fashion.
So what is now the strategic reasoning for Volkswagen to spin off its truck business ? The IPO of the unit marks the most significant structural shift for VW so far as it undergoes a major revamp. In charge since earlier this year, VW Chief Executive Officer Herbert Diess is pushing to accelerate efforts to make the world’s largest automaker less centralized and more agile by 2025 to tackle a seismic industry shift toward electric vehicles and new digital services. Its main competitor, Daimler, is also in the process of changing its corporate structure, in order to allow its truck business more autonomy. However top management executives have remained tight-lipped so far about a possible IPO. A potential public offering would further strengthen Traton financial flexibility and thus form the basis for an accelerated growth. Furthermore, as Volkswagens CFO Frank Witter stated: “The cars and truck segments only have synergies in procurement. Therefore, a separation of the operations makes sense. We have decided to take the next step to prepare (Traton) for a possible IPO.”
VW’s trucks business has a value of about EUR 28.5 bn., according to Bloomberg Intelligence analyst Michael Dean. Last year, Volkswagen heavy-truck division generated EUR 24 bn. in sales, compared to main competitor Daimler’s EUR 36 bn. VW’s brands MAN and Scania are market leaders in Germany, Europe and South America (especially Brazil as this was where VW originally invested in heavy-truck), however, they are lacking in North America and Asia, both important markets where 60% of the global sales happen. This is where Traton wants to improve. The IPO would generate funds for the division’s expansion plans, especially outside Europe, to challenge Daimler AG and Volvo AB in the global trucks market. Analyst believe, that Volkswagen intends to use the money it would raise through an IPO to buy out their two oversea joint-venture partners Navistar and Sinotruk in the US. and China respectively with the intention to catch up with aforementioned global rivals.
Traton potential IPO is still in quite some distance and might not even happen at all, if the market conditions are not favorable. As Traton CEO Andreas Renschler put it, they do not intend to go public “at all cost”. However things could move rather quickly, as Traton has overcame another important milestone towards capital market readiness by changing its legal structure into a Societas Europaea (SE), a requirement for an initial public offering. It will therefore be interesting to see how this project develops when it will reaches the next steps at the beginning of 2019.
Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are likely to win mandates as global coordinators for the share sale, people familiar with the matter said, asking not to be identified as the deliberations are confidential. Rothschild is acting as IPO adviser, the people said.
Fritz Waldow
Traton AG, or as it is formerly known Volkswagen Truck & Bus AG, is a wholly-owned subsidiary of Volkswagen AG and a leading global commercial vehicle manufacturer. Its portfolio includes some well-known brands such as MAN, Scania, Volkswagen Caminhões e Ônibus, and RIO. In 2017, Traton Group’s brands sold around 205,000 vehicles in total. Traton’s offering consists of light-duty commercial vehicles, trucks, and buses which are produced at 31 sites in 17 countries. As of December 31st 2017, the Company had a workforce of around 81,000 worldwide across all its commercial vehicle brands.
In particular its MAN and Scania brand have a strong reputation and a good market share. It is worth starting by looking at the history of Traton, and how Volkswagen managed to acquire MAN and Scania, two of the market leaders it the industry. Before 2000, Scania was a 100% subsidiary of the Swedish Saab conglomerate whereas MAN was a publicly traded company. In 2000, Volkswagen acquired 34% of the voting rights of Scania for 3 bn. German Mark (the equivalent of EUR 1.5 bn.), and increased its shareholdings to 38% by 2008. During that time, MAN hold around 20% of Scania, and tried to acquire the remaining shares, valuing the company at EUR 10.3 bn.. However, Scania’s largest shareholders (Volkswagen and the Wallenberg Family) declined the offer. Concurrently, VW increased its share in MAN from 15% to almost 30%. By November 2011, Volkswagen AG became MAN’s majority shareholder by a successful tender offer of EUR 95,00 per share. Six month later, Volkswagen held 75,03% of the voting rights and with that paved a way for a domination agreement. Through the acquisition of the majority in MAN, Volkswagen also increased its holdings in Scania (remember that MAN held 17% of Scania’s voting rights). Because of VW’s acquisition of Porsche (which also held shares in Scania) as well as the 17% from MAN, VW’s share in Scania grew to almost 90% by 2012. In 2014, VW increased that to 100% through a public tender offer at ca. EUR 21,53 a share. So by that year, Volkswagen managed to acquire the rival brands Scania and MAN and made them fully owned subsidiaries of the Volkswagen Truck & Bus AG.
The value creation that this implies can be summarized by one word: synergies.
From now on, teams of MAN and Scania engineers will together develop the core components of the powertrain which in turn will create common platforms for engines, transmissions, axles, and exhaust aftertreatment systems. The management of the cross-brand project will consist of top executives of each of the two companies, ensuring that the requirements of all parties involved are taken into account but that at the same time, the brand's independence is maintained and responsibilities are clearly defined. Each brand is going to be responsible for a specific area in the business: Scania will oversee the production for large engines with 13 liter-capacity, whereas MAN is in charge of smaller units with five- to nine-liter engines. The exhaust system and gearbox system have been broken down in similar fashion.
So what is now the strategic reasoning for Volkswagen to spin off its truck business ? The IPO of the unit marks the most significant structural shift for VW so far as it undergoes a major revamp. In charge since earlier this year, VW Chief Executive Officer Herbert Diess is pushing to accelerate efforts to make the world’s largest automaker less centralized and more agile by 2025 to tackle a seismic industry shift toward electric vehicles and new digital services. Its main competitor, Daimler, is also in the process of changing its corporate structure, in order to allow its truck business more autonomy. However top management executives have remained tight-lipped so far about a possible IPO. A potential public offering would further strengthen Traton financial flexibility and thus form the basis for an accelerated growth. Furthermore, as Volkswagens CFO Frank Witter stated: “The cars and truck segments only have synergies in procurement. Therefore, a separation of the operations makes sense. We have decided to take the next step to prepare (Traton) for a possible IPO.”
VW’s trucks business has a value of about EUR 28.5 bn., according to Bloomberg Intelligence analyst Michael Dean. Last year, Volkswagen heavy-truck division generated EUR 24 bn. in sales, compared to main competitor Daimler’s EUR 36 bn. VW’s brands MAN and Scania are market leaders in Germany, Europe and South America (especially Brazil as this was where VW originally invested in heavy-truck), however, they are lacking in North America and Asia, both important markets where 60% of the global sales happen. This is where Traton wants to improve. The IPO would generate funds for the division’s expansion plans, especially outside Europe, to challenge Daimler AG and Volvo AB in the global trucks market. Analyst believe, that Volkswagen intends to use the money it would raise through an IPO to buy out their two oversea joint-venture partners Navistar and Sinotruk in the US. and China respectively with the intention to catch up with aforementioned global rivals.
Traton potential IPO is still in quite some distance and might not even happen at all, if the market conditions are not favorable. As Traton CEO Andreas Renschler put it, they do not intend to go public “at all cost”. However things could move rather quickly, as Traton has overcame another important milestone towards capital market readiness by changing its legal structure into a Societas Europaea (SE), a requirement for an initial public offering. It will therefore be interesting to see how this project develops when it will reaches the next steps at the beginning of 2019.
Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are likely to win mandates as global coordinators for the share sale, people familiar with the matter said, asking not to be identified as the deliberations are confidential. Rothschild is acting as IPO adviser, the people said.
Fritz Waldow