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VW's $18.6 Billion Truck IPO to Test CEO's Overhaul Push

June 14, 2019
The manufacturer intends to offer stock in Traton SE, which sells MAN and Scania AB vehicles.

Volkswagen AG valued its heavy-trucks business at as much as $18.6 billion in a planned initial public offering that will test Chief Executive Officer Herbert Diess’s ambition of overhauling the carmaking behemoth.

The manufacturer intends to offer stock in Traton SE, which sells MAN and Scania AB vehicles, for between 27 euros to 33 euros per share, it said in a statement late Thursday, valuing the division at 13.5 billion euros to 16.5 billion euros ($18.6 billion).

German financial watchdog BaFin approved the IPO prospectus and Swedish pension fund AMF Pensionsförsäkring AB agreed to invest 200 million euros in the transaction, the automaker said Friday in a separate statement. That would make it Traton’s second anchor investor after parent VW, which will retain majority control.

It’s set to be one of the year’s largest European public offerings. While trade jitters and a slowing global economy have weighed on recent IPO deals, industrial companies like Switzerland’s Stadler Rail AG and Germany’s Knorr-Bremse AG, which listed in October, have fared well.

Listing Traton is management’s most notable move in a push to make the world’s largest automobile manufacturer more agile, which includes potential plans to shed assets, seek cooperations and free up units to make independent decisions. Diess is considering selling two operations that build ship engines and large transmissions while teaming up with Ford Motor Co. on vans and likely electric and autonomous cars.

While seeking to allocate investments more efficiently, the moves are also aimed at increasing the stock price and giving VW more financial flexibility. The company has committed to spending 44 billion euros through 2023 on electric and connected cars, with the payoff likely years away leaving the company’s valuation to trail the broader market.

VW’s plans for Traton and with Ford will help create “currency” for the upcoming phase of industry consolidation, Diess told a gathering of top executives on Thursday. In the truck division, VW plans to challenge industry leaders Daimler AG and Volvo Group in markets such as North America and China. This may include potentially boosting its 16.8% stake in U.S. peer Navistar International Corp.

“This IPO represents a much needed ‘first step’ structural change at VW as the management team seeks to unlock value during a period of significant and transformational industry changes,” Evercore ISI analyst Arndt Ellinghorst said in a note.

Volkswagen shares trade at 6.2 times earnings, compared with an average multiple of 16.1 for Germany’s Dax Index companies. The company declined 0.6% to 141.94 euros at 9:49 a.m. in Frankfurt trading, paring gains this year to 2.2%. Global stocks have struggled in recent weeks as trade frictions jeopardize global economic growth.

VW has been working toward a listing of Traton for more than three years, reviving plans last month that were shelved earlier in the year.

“We are now all set for the decisive phase,” VW Chief Financial Officer Frank Witter said in the statement. “The IPO is driven by the aim to create value for our stakeholders.”

VW is targeting proceeds from the IPO of as much as 1.9 billion euros. The proposed price range follows Volkswagen’s announcement this month of a public listing for its wholly owned Traton subsidiary in Frankfurt and Stockholm.

The base offer will be 50 million shares, with a possible over-allotment of as many as 7.5 million shares, subject to the use of a so-called green-shoe option for rights to additional stock, VW said. Trading is set to start on June 28 and the company is targeting a free float of 10% to 11.5% of Traton’s shares.

China Strategy

During the IPO’s marketing, investors will focus on Traton’s intentions for its stake in Navistar and its strategy in China, where it has no production joint venture such as Volvo and Daimler, Jefferies analysts led by Graham Phillips said in a note.

Diess, who took over the job a little more than a year ago, on Thursday addressed 500 top executives near VW’s corporate headquarters in Wolfsburg, Germany, and stressed the urgency of his push to make the transportation giant less centralized and more agile to navigate an unprecedented industry transformation.

Besides Swedish heavy-truck specialist Scania and Germany’s MAN, the unit includes a smaller operation in Brazil that sells VW-branded commercial vehicles for emerging markets.

The offer period for the share sale is set to begin on June 17 and end on June 27.

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