VW waits for decision on MAN truck sale

A change in German tax laws could result in MAN's heavy-truck manufacturing business being sold next year.

Beginning in 2002, German companies will be exempt from tax on capital gains from the disposal of holdings in other companies.

A group of shareholders including insurer Allianz and Commerzbank holds 26 percent of MAN and 36 percent of its voting rights.

Financial analysts believe the publicly listed, diversified manufacturer will be broken up next year if the parts are worth more than the whole. MAN's five divisions are: trucks, industrial services, printers, diesel engines for naval and industrial use, and industrial equipment/plant engineering.

Some analysts believe Volkswagen group is the most likely buyer of MAN's truck unit. VW already has a minority stake in Swedish truckmaker Scania, but VW Chairman Ferdinand Piech previously has said he wants a second heavy-truck brand in his company's portfolio.

"It would make sense for VW to hook up Scania with MAN, because both companies share synergies," said Tom Amey, an analyst at Dresdner Kleinwort Benson in Frankfurt.

MAN, of Munich, Germany, is the largest independent truckmaker in Europe, with revenue of $5.5 billion in the 2000 fiscal year. It ranks third in European sales behind DaimlerChrysler and Volvo/Renault VI. MAN is seventh largest in global production, with 63,841 units last year.

MAN stayed independent during the global consolidation in heavy trucks, in part because the truck building portion, MAN Nutzfahr-zeuge GmbH, is only 40 percent of the larger MAN holding company.

Legal changes pending

Consolidation in heavy trucks has slowed in recent years, but pending legal changes could affect MAN and Scania.

In the next three years, Volvo must sell off part of its 45.1 percent equity in Scania to meet demands imposed by the European Competition Commission.

Presumably that also would reduce Volvo's control of voting shares, currently at 30.4 percent. VW has 18.6 percent of Scania equity, but 34 percent of voting shares.

But it is not certain that VW will increase its equity in Scania.

"For the moment, Volvo wants too much money. It would be too costly," Piech told VW shareholders at the company's annual meeting in June.

That could make MAN more appealing to VW. A report last month in Germany's Manager magazine said talks between Allianz and VW about the acquisition of MAN's truck unit are at an advanced stage.

An Allianz spokesman said the speculation is not new. "It's been going on for four or five years, so it's pretty old news," he said.

Hakan Samuelsson, CEO of MAN's truck unit and a board member of MAN's holding company, said he does not know of any talks with VW.

"But you don't know what the shareholders want," said Samuelsson. "We have to respect their desires."

VW declined to comment on the MAN situation. But corporate spokesman Kurt Rippholz said Piech's public position on Scania was clear. "It would be obvious to conclude that VW does not intend to buy (Scania) stock for the moment," he said.

For now, it's a waiting game.

"If anyone wants to make a hostile bid (for MAN) now, it would require taking over the whole MAN group," an analyst said.

The German law that will free companies from paying capital gains tax on cross-shareholding sales goes into effect in January. For that reason, "I don't expect anything to happen before the year's end," the analyst said.

Shareholders' negative view

Analysts generally see few overlaps between MAN's product range, VW's local heavy-truck operation in Brazil and VW's stake in Scania. But at least one analyst is not sure shareholders would see any benefit from mixing VW's car production and sales focus with more heavy trucks.

"That could be seen as negative by the shareholders," the analyst said.

Others see more benefit.

Richard Walles of DRI Wefa in London said adding MAN trucks would supplement the Scania product range.

"But both truckmakers are still Europe-focused with very little presence in other parts of the world," Walles said.

VW has a profitable truck operation in Brazil. But VW's Brazilian truck is relatively small and based on an aging cab design. It is derived from a joint venture with MAN during the 1980s.

Heavy-truck sales are expected to slow 10 percent this year after a 3.3 percent decline last year. That hasn't helped MAN's share price. MAN's market capitalization is $4.3 billion, but that has fallen 18 percent since January.

MAN announced 3,700 job cuts this year, Samuelsson said.

Samuelsson is working on creating a better brand image for MAN, which traditionally has been weak, particularly in Germany.

"But we are working on a turnaround to increase our brand profile and presence in the market," Samuelsson said.

In June, MAN acquired German bus producer Neoplan. MAN also owns several regional truck brands: ERF in the United Kingdom, Steyr and Graf & Stift in Austria, and STAR in Poland.

MAN is positioned in the premium-priced end of the heavy-truck market alongside Scania, Volvo and Paccar subsidiary DAF, in Holland.

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