Welcome to Volkswagen, Where Nothing Makes Sense
(Bloomberg Opinion) -- Back in March, Volkswagen AG cancelled preparations for an initial public offering of its truck unit Traton SE, blaming the difficult stock market environment. That decision raised eyebrows, as VW had just been talking up its value-creating ambitions at an investor day, while risk assets were enjoying the best first quarter in at least a decade.
Now, as stock markets tumble on U.S.-China trade fears and big IPOs such as Uber Technologies Inc. and Lyft Inc. have flopped, VW says the time is right to restart the IPO process. A listing is expected before the summer vacation. “Current market assessments have encouraged us to take today’s decision,” the company’s finance director Frank Witter explained. Come again?
Investors need no reminding that VW is a very peculiar fish. Trade unions and politicians often call the shots, while regular shareholders have barely any voting power. Cheating on diesel emissions went on for years (the scandal has cost about 30 billion euros to rectify) and VW has failed to fully account for what went on. No wonder proxy advisers are recommending a vote against the carmaker’s leadership at Tuesday’s annual shareholder meeting.
After today, we can add “baffling communication” and “woeful sense of timing” to VW’s list of idiosyncrasies. Strangely enough, though, its screeching U-turn on the trucks IPO is still the right thing to do.
Yes, the reversal does suggest that there’s probably some truth to reports about a boardroom disagreement over the IPO’s timing, which isn’t exactly reassuring. If stock-market volatility continues, VW may have to sacrifice some value. On a multiple of earnings similar to peer Volvo AB, Traton is probably worth about 17 billion euros ($19.1 billion). That might not seem much for a business that generated more than 26 billion euros of sales last year and owns a stake in U.S. truckmaker Navistar International Corp.
However, such considerations are trivial compared to what VW could achieve by convincing shareholders that it’s serious about tackling its massive “conglomerate discount,” which has left its market worth far below the value of its various holdings. VW’s market capitalization is just 76 billion euros, a meager six times its yearly earnings.
There’s no better way to show you’re serious about charming the capital markets than embarking on an IPO roadshow. Other potential non-core asset sales announced on Tuesday — relating to the power engineering businesses MAN Energy Solutions and Renk AG — suggest that VW has listened to criticism about the group’s complexity.
Further proof will be needed before investors believe that VW has changed its spots. In particular, management needs to convince people that the all-in bet on electric vehicles won’t be a financial disaster (the company now plans to build a battery cell factory at home). There’s a risk too that if markets go from bad to worse, VW will be forced to call off the IPO for a second time. Stranger things have happened at the German giant.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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