Volvo urges truck merger with Scania

VOLVO YESTERDAY urged Scania to merge with it and create the biggest truck and bus manufacturer in Europe after picking up a 13.5 per cent stake in its Swedish rival in a stock market raid.

A Volvo-Scania merger would produce a combined group with truck and bus sales of 130,000 a year, turnover of pounds 7.6bn and 50,000 employees.

In the market for heavy trucks of 16 tonnes and over, the merged business would leapfrog Mercedes Benz into the number one spot commanding 30 per cent of sales in West Europe. Worldwide, it would be the second biggest truck and bus company.

The controlling shareholder in Scania, Investor, reacted angrily to Volvo's move. Investor's chief executive, Claes Dahlback, described the pounds 385m share purchase as "unfortunate" and said it would make the merger discussions so far held between the two companies more difficult.

The discussions are thought to have stalled because of a dispute between the two companies over the valuation of Scania. Mr Claes said a merger with Volvo could produce significant synergy gains but there were alternative possibilities that were even more interesting which it would continue to pursue.

Volvo said it was interested in pursuing a "constructive dialogue" with Scania's shareholders, suggesting that a hostile bid was unlikely. However, it indicated it could launch a tender offer for the remaining shares. If that happened, it would pay the difference between the price at which it picked up shares yesterday and the final takeover price.

The move on Scania fuelled speculation that Volvo would sell off its car division in a deal with a volume car maker. It has appointed the investment bank JP Morgan to examine a sale and two possible partners are Ford and Fiat of Italy.

However, Leif Johansson, Volvo's chief executive, appeared to contradict this yesterday saying the strategy in cars was to be a niche player based on organic growth.

In 1997 Volvo produced 70,000 trucks and 12,000 buses while Scania produced just over 42,000 trucks and 4,500 buses. In the key heavy trucks market they each have a 15 per cent share compared with Mercedes Benz's 21 per cent. Any merger could run into trouble with European Commission competition authorities.

Karl-Erling Trogen, president of Volvo Truck Corporation, said there is a need for consolidation within the automotive industry and Volvo wants "to take part in this industry restructuring."