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Volkswagen, Volvo Shares Rise

July 1, 1998

BERLIN (AP) _ Volkswagen’s recent shopping spree may not be over. After snaring Britain’s Rolls-Royce and Italy’s Lamborghini, Europe’s largest automaker now reportedly is interested in Sweden’s Volvo.

Shares of the two companies jumped Wednesday after a report said they were discussing a possible joint venture or merger.

Neither company would confirm a deal was in the works. But Volkswagen has shown interest before in expanding its lineup to include big commercial vehicles. And Volvo, although best known for its cars, is one of the world leaders in medium and heavy trucks.

Auto industry watchers said a VW-Volvo hookup would be the right strategy for Volkswagen to increase the heat on rival Daimler-Benz, which is broadening its product line by joining with Chrysler Corp.

Volkswagen spokesman Kurt Rippholz in Wolfsburg declined to comment on The Wall Street Journal report. And Volvo, from headquarters in Goteborg, Sweden, only would confirm that its chief, Leif Johansson, met with Volkswagen chairman Ferdinand Piech last Friday.

A spokeswoman for Volvo Germany in Cologne played down the meeting, calling it ``completely normal.″ She said the two men discussed the delivery of engines and other components, adding that such conversations take place all the time.

VW’s Audi subsidiary makes five-cylinder engines for Volvo.

But auto industry watchers note that before announcing Audi had signed a letter of intent to buy Lamborghini last month, VW officials said the two firms were only discussing engine deliveries.

Volkswagen’s commercial-vehicle division specializes in light vans and minibuses, but Piech has expressed interest in entering the market for medium and heavy trucks. Prospective partners mentioned have been Sweden’s Scania AB, France’s Renault SA and Germany’s MAN Nutzfahrzeug AG.

Renault and MAN say they are not interested.

VW approached Scania in November about making a truck together, but a spokeswoman at Scania said Wednesday that VW and Scania have concluded their talks without any immediate result.

But auto analysts say Volkswagen could be looking at forming a VW-Volvo-Scani conglomerate.

Volvo and Scania are respected truckmakers based in the same place. And a merger of the three could help fulfill Piech’s dream of using passenger car parts to build trucks more cheaply, said Ulrich Horstmann, analyst at Munich-based Merck, Finck & Co.

``I can imagine Piech is interested in a package deal, merging with Volvo and Scania in one single move,″ Horstmann said.

Other analysts agree it might make more sense for VW to grab Volvo and Scania in a share deal rather than try to buy Volvo outright.

Based on current share prices, VW would have to pay 32.3 billion marks ($18 billion) to take over both companies, with Volvo accounting for about three-fourths.

Volvo, in turn, would benefit from cost savings and synergy effects when sharing production with VW, said Georg Stuerzer, chief car analyst at Munich-based Bayerische Vereinsbank.

In European trading, Volkswagen shares were up 4.6 percent and Volvo shares were up 5.5 percent at midday.