by Thomas Williams and Alessandra Castelli in London
Published: May 25 2007 16:17 | Last updated: May 25 2007 16:17
BMW, the German carmaker, is in informal talks to buy the Swedish car manufacturer Volvo Cars from its owner Ford, according to two sources close to the situation. One source said that the Bavarian car maker has examined the financials of Volvo Cars in recent months, and is now exploring a possible acquisition of the company. The source added that, however, other companies have also studied Volvo Cars‘ financials.
BMW and Ford declined to comment.
A second source, close to BMW, confirmed that a Volvo cars sale process is currently taking place. He also confirmed that BMW is looking at Volvo Cars’ books but does not believe that the German company will end up buying Volvo Cars.
“BMW has already everything that Volvo cars cannot offer,” the source said.
Several industry sources have downplayed the possibility that Volvo Cars could be an attractive target for private equity, in spite of the fact that Chrysler Corp was acquired by Cerberus Capital just two weeks ago. The sources argued that it would make no sense for a private equity firm to buy an automotive company, given their cyclical nature and the prospect for making large losses in a downturn.
“In this economy, where there are so many other opportunities, PE would prefer companies with strong cash flow and not car opportunities which make high leveraged companies dependent on strong cash flow,” one source said.
Hampus Engellau, an analyst at Handelsbanken Capital Markets, disagreed with this view, saying that private equity might find Volvo Cars’ recently updated range of models attractive because little investment would be required for renewal.
An industry source said he heard that Nordic Capital has expressed some interest in Volvo Cars in an attempt to return the brand back to its home market. A private equity director dismissed the idea, however, pointing out that a Volvo acquisition would likely be beyond Nordic Capital’s investment size criteria. Ford acquired Volvo in 1999 for USD 6.5bn.
Handelsbanken’s Engellau concurred, adding that an attempt to recreate a Swedish car brand through such a deal “makes no sense.”
Nordic Capital declined to comment.
Volvo Cars delivered 427,964 cars to consumers in 2006 down 3.6% from 443,947 in 2005. But the company has said it had a strong first quarter this year and is launching seven new models between 2006 and 2009. It sells cars in more than 100 countries but has a relatively small market share of 1-2% in its main markets of the US, the UK, Germany and Italy. However, Volvo is much stronger in Sweden where it is estimated that one in every five cars sold is a Volvo.
http://www.ft.com/cms/s/b7d4f906-0ad1-11dc-8412-000b5df10621,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html
