Suzuki Mo­tor to buy back VW’s stake

In­ter­na­tional ar­bi­tra­tion court or­ders Ger­man au­tomaker to sell its hold­ing af­ter dis­agree­ments

The Witness - Wheels - - MOTORING -

TOKYO — Ja­pan’s Suzuki Mo­tor Corp said on Sun­day it would buy back the 19,9% stake it sold to Volk­swa­gen AG af­ter an in­ter­na­tional ar­bi­tra­tion court or­dered the Ger­man au­tomaker to sell its hold­ing.

Their planned part­ner­ship soured with Ja­panese au­tomaker ac­cus­ing VW of seek­ing to con­trol it and fil­ing for ar­bi­tra­tion in Novem­ber 2011. VW’s stake, ac­quired in Jan­uary 2010 for €1,7 bil­lion (R25,3 bil­lion), was worth some $3,8 bil­lion (R50,3 bil­lion) at last Fri­day’s clos­ing price.

Both com­pa­nies said they wel­comed the clar­ity of­fered by the rul­ing from the In­ter­na­tional Court of Ar­bi­tra­tion of the In­ter­na­tional Cham­ber of Com­merce, which par­tially up­held the Ger­man com­pany’s coun­ter­claims of breach of con­tract.

“It used to feel as if a small bone were stuck in my throat,” Suzuki chair­per­son and chief ex­ec­u­tive Osamu Suzuki told a news con­fer­ence. “I feel so re­freshed now.”

Suzuki said it fore­sees no im­pact on its full-year earn­ings.

The Ja­panese au­tomaker’s shares climbed as much as 4,6% early yesterday, be­fore trad­ing flat. That still out­per­formed a 1,2% de­cline in the bench­mark Nikkei av­er­age.

“While we be­lieve in­vestors might re­act favourably to news of the share buy­back, we ba­si­cally think all of this is al­ready priced in,” JP Mor­gan an­a­lyst Akira Kishi­moto wrote in a re­port.

VW said in a state­ment it would not know the im­pact on its bal­ance sheet or prof­its un­til it has co-or­di­nated the sale of the Suzuki shares. “We have al­ready re­tained an in­vest­ment bank and will in the next few days con­sult with the bank and our lawyers over the next steps to be taken.”

U.S. hedge fund mogul Daniel Loeb urged Suzuki to can­cel the shares it buys back, say­ing the au­tomaker has enough cash on hand and should avoid is­su­ing eq­uity.

Loeb sent Suzuki shares soar­ing early this month by dis­clos­ing his Third Point LLC fund held a stake. He said at the time the stock was cheap and that the ex­pected res­o­lu­tion of the VW dis­pute would al­low it to make bet­ter use of its cash.

In a phone call with a small num­ber of media out­lets, Loeb said Suzuki should buy the shares at a price not too far from the cur­rent price.

Suzuki said it ex­pects to buy back its shares at a “rea­son­able” price, though it did not elab­o­rate.

Takaki Nakanishi, chief ex­ec­u­tive of Nakanishi Re­search In­sti­tute, which spe­cialises in the automotive in­dus­try, said it was “highly likely it will buy back at the Fri­day clos­ing price”.

“For Suzuki, this isn’t that much money,” he added. Suzuki had nearly 1 tril­lion yen (about R109 bil­lion) in cash re­serves as of the end of March.

Loeb did not men­tion other spe­cific mea­sures he ex­pected from Suzuki but said he saw a can­cel­la­tion as a “first next step”. He said he would be happy to meet with man­age­ment to dis­cuss other “share­holder-friendly steps” to bet­ter al­lo­cate cap­i­tal, adding that he had no plans to sell the shares yet.

Third Point has not dis­closed the size of its Suzuki stake. Ja­panese reg­u­la­tion re­quires own­er­ship of five per­cent or more to be de­clared.

The two au­tomak­ers agreed to tie up in De­cem­ber 2009, pledg­ing to co-op­er­ate on tech­nol­ogy such as hy­brid and elec­tric cars and on ex­pand­ing in emerg­ing economies. But the al­liance soon fal­tered. In ad­di­tion to Suzuki’s fears that VW was at­tempt­ing to con­trol it, VW ob­jected to Suzuki’s pur­chase of diesel en­gines from Fiat. — Reuters.

AKIRA KISHI­MOTO, JPMor­gan an­a­lyst “While we be­lieve in­vestors might re­act favourably to news of the share buy­back, we ba­si­cally think all of this is al­ready priced in.”

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