Volkswagen’s Truck Unit Opens Flat in Frankfurt Trading Debut
(Bloomberg) -- Volkswagen AG’s trucks unit fell on its first day of trading as investors took a cautious stance on its global expansion plan, which includes boosting its U.S. footprint and going head-to-head with market leaders Daimler AG and Volvo Group.
Traton SE declined as much as 2.4% to 26.36 euros after its initial public offering priced at 27 euros, the bottom of the range. Volkswagen raised 1.55 billion euros ($1.8 billion) from listing a stake of about 11.5% in a transaction that values the German auto giant’s truck unit at 13.5 billion euros.
Other recent industrial stock offerings have fared better. German commercial vehicles brakes maker Knorr-Bremse AG has gained 21% since its IPO in October, tracked by Swiss train maker Stadler Rail AG’s performance after listing in April.
A completion of the sale, one of Europe’s biggest this year, is still a sea change in the Wolfsburg-based company’s effort to streamline its sprawling empire after a decade of rapid expansion. Over the years, Volkswagen added Porsche, Bentley luxury cars, Ducati motorcycles and heavy truck brands. In the age of electric and self-driving vehicles, the cumbersome structures that have grown around a network of well over 100 factories are slowing decision-making and causing the company to risk falling behind.
VW’s byzantine governance with a powerful labor council and complex ownership structure has often stood in the way of deeper changes in recent years. A plan to sell Ducati was derailed in 2017 because of internal resistance, making Traton’s IPO a milestone for Chief Executive Officer Herbert Diess and trucks head Andreas Renschler, who bought 540,000 euros worth of Traton shares.
VW could use Traton’s IPO proceeds to expand the division’s footprint in North America -- the truck industry’s largest profit pool -- where the carmaker holds a 16.8% stake in Navistar International Corp. Renschler has said he wants to expand on a leading position in Europe and Latin America with future potential moves on acquisitions and alliances to grow into a global truckmaker.
Analysts have speculated on a buyout of Navistar after Traton’s listing, with Bloomberg Intelligence analyst Christopher Ciolino calling a deal “a likely outcome.” In a report last month, he wrote that Navistar could command an equity value of as much as $5.3 billion, while the market may start to weaken in the fourth quarter.
The listing was a “big step” forward for Traton’s strategy, Renschler said, speaking at the Frankfurt stock exchange. The company is also listed in Stockholm, home to the truckmaker’s Scania brand, its biggest profit contributor.
The stock was at 26.49 euros as of 3:18 p.m. in Frankfurt, while Bharti Airtel Ltd.’s Africa unit, which also started trading Friday, declined 13% after also pricing its offer at the low end of its range.
“The market is what it is,” Scania CEO Henrik Henriksson said in an interview. “The important thing for us is that we have a strategy and a plan that we believe wholeheartedly in.”
Traton’s stock will be tracked by investors as a peer to Sweden’s Volvo, the only standalone commercial-vehicle manufacturer in Europe that competes with a similar product range. Led by former Scania chief Martin Lundstedt, Volvo set the bar high with a successful restructuring that boosted returns within three years. At VW, the MAN truck unit has made only tepid progress in recent years on lifting profit margins.
The European market for trucks is expected to soften during the second half of the year, Jefferies analyst Graham Phillips said in a note this week, noting Volvo’s decision to reduce a summer production shift. Heavy-truck registrations in May were “stronger than expected,” helped by one-off effects like pre-buying ahead of a digital tachograph requirement that took effect this month.
Volkswagen CEO Diess, in the job for just over a year, is renewing the push to lift the company’s poor valuation by becoming less centralized. Increasing the valuation will be key “currency” in the industry’s phase of consolidation and partnerships in the shift to electric and self-driving cars, he said at a recent meeting of top management. The company trades at a price-to-earnings multiple of 6.4 times, compared with Germany’s Dax Index at 16.2.
VW is a behemoth that sprawls across 122 factories worldwide with some 650,000 employees. The company has started to review strategic options including a possible sale of other non-auto businesses, including transmissions maker Renk AG and MAN Energy Solutions, which produces large diesel engines for ships and turbines. It’s also open to sell more Traton shares.
Aside from the Navistar holding, Traton owns a 25% stake Sinotruk Hong Kong Ltd. in China, while Daimler and Volvo both have local production ventures. Traton wants to expand the MAN brand’s presence in China and is developing a dealer network for Scania in the country, Renschler said in a Bloomberg TV interview.
“We see the potential for European trucks in China is really growing,” he said.
©2019 Bloomberg L.P.