Ford seeks to offload Volvo in $8bn sale

The Times ^ | 7/15/2007 | Dominic O’Connell

[bruinbirdman]

FORD is preparing to sell Volvo, the Swedish car group it bought eight years ago, in a move that could raise $8 billion (£3.9 billion) for the struggling Detroit giant.

City sources say that a decision in principle to sell Volvo was taken a fortnight ago, but that the timing of the sale had yet to be decided. No bank had been appointed to handle the transaction.

Volvo is the flagship of Ford’s Premier Automotive Group (PAG), a stable of luxury European marques it built up during an expansionist phase in the 1980s and 1990s.

It began dismantling the group last year when it faced a bleak financial situation in its core business. It sold Aston Martin earlier this year in a deal worth £479m, and this week it will receive indicative bids for Jaguar and Land Rover, the two other British members of the PAG. The pair, which are being sold as a single business, are expected to fetch up to £1 billion.

Volvo is larger than Aston Martin, Jaguar and Land Rover. It employs 27,500 people and makes about 500,000 cars a year at plants in Swe-den and Belgium. Britain is its third-largest market after America and Swe-den. It made its name as a maker of sensible, safe cars, although in recent years it has adopted a sportier image.

While the PAG as a whole loses money – $327m last year on sales of $30 billion – Volvo is understood to be profitable. Ford does not disclose separate figures for the Swedish group, but analysts have speculated that it made about $500m last year. Ford paid $6.95 billion for Volvo in 1999, buying it from AB Volvo, the truck maker.

Analysts estimated Ford might receive $8 billion in a sale, but pointed out that the dollar had weakened in the intervening years.

A sale of Volvo would, like the disposal of Jaguar and Land Rover, be complicated by the level of integration built up between Ford and its divisions. Volvo and Ford models share common components and designs, while Volvo supplies electronic and safety systems to Ford plants.

Automotive industry sources said the timing and speed of the sale would depend on the level of interest that came from rival carmakers and private-equity groups.

“If they have a good offer from a Western carmaker, they would be able to move fast, because the integration issues can be sorted out quite quickly. But if it’s private equity, it will all need to be worked out in advance so they can do their normal due diligence,” said one source.

Renault, which planned a tie-up with Volvo before the Swedish firm was sold to Ford, could be a bidder, while other automotive bankers believe BMW, Hyundai or a Chinese manufacturer may be in the running.

“They are getting a lot of people coming to them with ideas because Volvo is an attractive asset. If they get the right one they could act quickly,” the source said.

Ford, which reports its interim figures next week, declined to comment. It said it had announced a strategic review last year and that no decision had been taken on the future of Volvo.

The company, which like all the Detroit giants is facing crippling pension and healthcare costs and tough foreign competition, is in the middle of a turnround plan devised by chief executive Alan Mulally and chairman Bill Ford.

Last year Ford lost $12.7 billion – equivalent to nearly $7 for every Ford share. It now has a stock-market value of $16.3 billion, with the shares closing last week at $8.97. The sale of Jaguar and Land Rover will take a step forward this week with indicative offers from a group of buyout firms.

Those involved with the discussions say Ford has imposed strict conditions of secrecy on would-be bidders, even to the point of vetting potential advisers. “They are completely paranoid about leaks,” said one person close to the talks.

[bajabaja]

Just went to the Chilton’s for my sister’s Focus after reading your comment. I see what you mean. She complained of the squeaking.

[Jorge]

I've found Fords to be excellent cars. Mine have all been extremely reliable and trouble-free.

I'm not surprised that they are now on top when it comes to quality ratings.

[CutePuppy]

Not exactly.

Daimler bought (in a “merger of equals”) Chrysler in 1998 for equivalent of $36 billion. After the sale they will retain 19.9% after paying additional $650 million, with Cerberus paying $7.4 billion for 80.1% stake, and with the new venture assuming over $19 billion in retirement liabilities, which Cerberus is raising through debt from banks.

[Forgiven_Sinner]

Interesting. Volvo has been one of my company’s(Caterpillar)key competitors in engines and heavy equipment.

Being detached from Ford should lower their resources, yet perhaps free them up to act more quickly. We’ll see. In general, I think this isn’t good for them in the short term.

I wonder if they’ll maintain their vertical integration with truckers. Several truck companies use Volvo engines exclusively. Perhaps the integration may break down and open the market to Caterpillar.

[Oystir]

The greedy capitalist owners agreed to all the contracts.

[LowOiL]

Abba could make a cool Billion for a reunion tour. Gee...

http://news.bbc.co.uk/2/low/entertainment/3044114.stm

The year after the birthday performance, the group turned down a $1bn (£600m) offer for a reunion tour.

[bajabaja]

Thanks for that detailed information, CutePuppy. If DB retains about 20% of Chrysler, does that mean that some of DB’s engineering will be picked up by Chrysler? I had heard, for example, that some Chrysler products were bettered by DB suspension design, etc.

It still sounds like an ouch for Dr. Z, if he offloads $20 billion in pension liabilities and gets about $8 billion (for a total of around $28 billion to the good) if DB paid around $10 billion more for the merger. Not trying to quibble, but it still looks like an unhappy entry on the ledger for DB.

And the controlling owners of Chrysler are a group that takes its name for a guard dog of Hades? In deference to your screen name, I will not make any further “going to the dogs” remarks.

[Westlander]

My Dodge Caravan has sealed boots (no zerk fittings) on the front end. I use a 50cc syringe with a large bore needle to pump grease into the boot and use the same hole I made in future greasings. So far works OK with no water accumulation in the boot.

[SteveMcKing]

Now if only GM would sell SAAB to a quality buyer....

[Nik Naym]

I thought that Volvo Trucks were not part of Volvo-Ford?

[advertising guy]

they made silicone spray at the Ford dealer or a Checker Auto store....the trick is to bounce the suspension as you spray lub the area....sounds silly but it words,doesn’t wash off and stops squeaks.......The grommits used today are space age polimers and unbreakable

[CutePuppy]

I think you may be confusing the Volvo passenger car operations that Ford bought in 1999 with the Swedish AB Volvo (VOLV) which is competitor of Navistar and Caterpillar and manufactures heavy equipment and engines. I think Ford is buying industrial / truck engines from Navistar.

-— AB Volvo - Selected Products and Brand Names
Trucks
Mack
Renault
Volvo
Construction Equipment
Articulated haulers
Backhoe loaders
Excavators
Motor graders
Skid steer loaders
Wheel loaders
Buses
City buses
Coaches
Intercity buses
Financial Services
Customer financing
Insurance
Volvo Penta
Marine engines (luxury and work boats)
Industrial engines (forklifts and construction equipment)
Volvo Aero
Aircraft engines
Engine components

[advertising guy]

SAAB is a great product.......wiat to see next years concept rides drawing attention to the fact GM owns SAAB

[John Jamieson]

Kinda scary to realize that there is a Mexican phone company guy, that could buy Ford, Volvo, and Chrysler. All out of pocket.

[CutePuppy]

It's definitely a big ouch for Dieter Zetsche, but he's making the best of it while keeping a big chunk of Chrysler in case of turnaround and possible future IPO, which is more likely now that it's private. And you're absolutely right about huge improvement in engineering, design and quality of Chrysler lines. 300 is so popular because in many respects it is (subjectively, of course) on a par or better than entry-level Mercedes models. I was actually surprised to find that Chrysler was still losing money, but I don't think it has anything to do with quality of the product.

Re "going to the dogs", I do appreciate your sensitivity, but we parted ways with Cerberus ages ago when he decided to go to Hades for a "filthy lucre". In other words, he is not one of us, though I understand he's doing quite well financially.

Here's more details on Cerberus (and Chrysler), from D&B:

Named after the mythical three-headed dog that guards the gates of hell, Cerberus Capital Management has become a driving force among private equity firms. One of its more recent acquisitions is an 80% stake in DaimlerChrysler Motors (soon to be renamed Chrysler Corp. LLC). Cerberus was also the lead investor of a group that acquired 51% of GMAC, the financing arm of General Motors. The company currently owns bus manufacturer Blue Bird and is buying car parts maker Tower Automotive. Other holdings include a majority stake in Japanese bank Aozora, manufactured home loan servicer Green Tree Servicing, real estate services firm LNR Property, and ACE Aviation Holdings, the parent company of Air Canada.

Because the company believes that the sector has long been undervalued, Cerberus has become heavily involved in the automobile industry. In addition to its GMAC and Chrysler holdings, the company now has an interest in CTA Acoustics (automobile insulation), GDX Automotive (auto seating products), Guilford Mills (auto seating products), and Peguform Group (auto interior products).

A key to early success for the Cerberus-Chrysler deal may well be found in its new labor agreement with the United Auto Workers (UAW) union (the current contract is set to expire in September 2007). While Chrysler has already announced plans to reduce its workforce by some 13,000 and to shutter at least one manufacturing facility, it's biggest battle will be to reduce labor and the associated health-care costs.

The task may seem daunting, given the current state of American automakers, but Cerberus does have several things in its corner. For one, because it will be a private company (the first private major US automaker since Ford went public back in the '50s), Chrysler will not live and die by daily share prices. Also, because Cerberus has extensive investments in the auto parts industry, it will have added leverage when dealing with suppliers. (To underscore its importance, a change in supplier relations was announced just hours after Cerberus emerged as the new Chrysler owner with the announcement that Simon Boag would become the new vice president of procurement.) Cerberus chairman John Snow should also give Chrysler an edge. Snow, the former Treasury secretary in the Bush administration, briefly served as the head of the National Highway Traffic Safety Administration while Gerald Ford was president.

Although no official offers have been made, Cerberus could also be a potential buyer for both Jaguar and Land Rover--a couple of automobile companies Ford is looking to unload.

With a majority stake in GMAC and the financing company that comes with the Chrysler purchase, Cerberus will now control an influential share of the automotive financing market in North America.

The company is selling its stake in Vanguard Car Rental Group (parent company of Alamo Rent A Car and National Car Rental) to Enterprise Rent-A-Car.

The private equity firm has not been solely concerned with auto industry however. Cerberus agreed to buy UK home improvement chain Focus (DIY) from Apax Partners and Duke Street Capital in 2007. It is also buying UK firm Torex Retail, which makes software for retailers.

In early 2006 Cerberus joined with SUPERVALU grocery, CVS Corporation, and Kimco Realty to buy grocery chain Albertsons in a deal worth $9.6 billion.

Cerberus' NewPage Holding (formed after the acquisition of MeadWestvaco 's paper business) filed and later withdrew an initial public offering.

[eraser2005]

Every Toyota I’ve seen lately has been the same way.

When the tie rod end boot split, I couldn’t find any parts store with a greaseable replacement. At least when the same happened to my Taurus, I was able to go greasable on the replacement.

Does any manufacturer use greasable anymore? I know most switched because most owners neglected to have them serviced. So while greasable lasts much longer when properly serviced, going non-greasable means a much higher average lifespan for the initial part.

Most owners really don’t know what proper maintenance means.

[eraser2005]

Something you learn to do fast when you have a 97-01 Toyota Camry and don’t want to have to replace the strut mounts every 3 months because the noise is driving you insane. :)

[buccaneer81]

$8B for Volvo, sounds like Ford is hard up for cash. I don’t follow the subsidiaries books that closely, but it seems that it should be worth far more than that.

Daimler sold Chrysler for $7b. After buying it for $35b. What a bunch of maroons.

[bajabaja]

Looks like this is a group thinking about reviving a moribund American trademark, which Chrysler seemed to be for the last few decades. Leverage/ownership of suppliers, a contract up for negotiation with the UAW, and majority ownerhip of GMAC.

The one thing I do not see (and this is not a criticism, but a comment based on my observations of Chrysler over the years) is whether their engineering staff / quality control and actual manufacturing will be up to the competition. But given what Cerberus has assembled so far, one has to expect that that central aspect has not been neglected.

For more than a decade the only Dodge I wanted was a Viper. The 300 has advanced Chrysler's image, but there is a lot more work to do.

Thanks for two very informative posts.

[bajabaja]

You mean Carlos Slim? Yes, he is the richest man alive, but I have to tell you, he is aided by anti-competitive laws and alliances with key Mexican lawmakers. I am typing to you from Mexico using his Telnor/Telmex internet connection. Competition here is not the norm. ISP service in the US ranges from about $10 per month to $60, depending; here it starts at $40 and goes up. That is slowly changing, but competition is elbowed aside while he gets richer. I appreciate anti-trust laws. And Walmart is the largest single employer in Mexico, Slim’s phone company employees only half as many people. One can daily see here the effects of the absence of economic competition.