VW Will Acquire As Much As 20% of Suzuki
Sources with direct knowledge of the deal have told Reuters that Volkswagen AG has concluded negotiations with Suzuki, Japan’s fourth-largest automaker, to take a stake in the Japanese company of as high as 20%.
The sources say that an announcement could be made as early as next week.
It is expected that VW will increase that stake in the future to at least one-third, in order to have a controlling stake in the company. Such a move would make Suzuki a VW subsidiary.
VW has stated publicly that it wishes to be the world’s largest auto manufacturer by 2018. Suzuki’s minicar and small car expertise and its sales strength in developing markets could be quite instrumental in achieving that goal.
Although Suzuki has been saying that they would welcome a partnership with a major company since they lost their previous ties to General Motors, Suzuki CEO Osamu Suzuki denied that any talks were occurring with VW as recently as three weeks ago. The news of a deal with VW, therefore, is somewhat surprising.
Volkswagen’s $45.7 billion USD market capitalization now encompasses ten brands, including VW, Porsche, Audi, Lamborghini, Skoda and others, a dominant position in Europe, China and Brazil, and high growth potential in other developing markets. VW’s weakest area may be the US market, where, despite major past efforts to increase their market position, VW has only a 2% market share.
Suzuki is the 800-pound gorilla of the expanding Indian market, as well as the unquestioned leader in the unique-to-Japan market segment for 660cc minicars (kei cars), and currently has a market capitalization of $13.7 billion. Suzuki has a minuscule .2 % of the US market. Admirably, Suzuki also owns 20 percent of itself in treasury stock, bought back from GM between 2006 and 2008 after GM signaled its exit from their partnership.
GM’s first investment in Suzuki was as far back as 1981 and eventually climbed to 20 percent of the Japanese carmaker in 2001. GM’s financial problems precipitated an unwinding of the partnership. In fact, on a related note, Suzuki divested itself of 50% of CAMI just a few days ago. CAMI was a Canadian joint venture it maintained with GM during its partnership. Suzuki sold their share back to GM.
VW is expected to very quickly either tap Suzuki’s expertise in order to develop a platform for their small Up concept car, or just adapt Suzuki’s existing platform in whole, and be done with the development in one stroke.
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