Power Engineering - Stage set for MAN-Scania breakthrough

15 January 2007 - The chairmen of Volkswagen, Investor and MAN will meet this week to begin "friendly and constructive" negotiations over a merger of MAN and rival truckmaker Scania.

The breakthrough follows months of escalating tension between the German and Swedish sides after MAN made a €10.3bn ($13.3bn) hostile bid to take over Scania last September. VW's Ferdinand Piëch will meet Jacob Wallenbergof Investor, Scania's second-largest shareholder after VW, and Ekkehard Schulz of MAN, according to people close to the talks.

"The stage is set for friendly and constructive discussions," said one person familiar with Investor's thinking. "We are now where we should have been at the very beginning."

This week's meeting was convened immediately after VW announced last week it had formally rejected MAN's bid for Scania, after months of prevarication. VW owns 34 per cent of Scania and 20 per cent of MAN.

VW appointed Martin Winterkorn as chief executive as part of a management shake-up understood to have been engineered by Mr Piëch. "We no longer have the 'B' team in place and can now talk to the 'A' team," an adviser on the Swedish side said.

The talks will not be about modifying MAN's bid. They will aim to design a new alliance between the two companies, people close to the talks said yesterday.

Investor controls 20 per cent of Scania and has rejected MAN's offer. But it has insisted throughout the bidding process that an alliance between the two has "industrial merit".

It is keen to pursue a "merger of equals", as yet undefined, which would allow Scania to play a greater role in the merged entity. Investor would retain a stake in what would be Europe's largest truckmaker.

"Wallenberg and Piëch [each] want all the control for themselves," claimed one adviser. "Someone has to give some ground."

Other obstacles are likely to include securing union backing in Germany and Sweden, choosing the location of the head office and deciding who will run the new company.

It is unlikely Håkan Samuelsson, MAN's chief executive, and Leif Östling, Scania's chief executive, will be able to work together.

Mr Piëch's favoured solution last year was for a new company to be formed into which all the truck assets - including VW's Brazilian operations - would be folded and in which VW would have a majority shareholding, according to people familiar with his thinking.

MAN's €10.3bn bid is still on the table and does not formally expire until January 31. It is understood that MAN is considering how much more it can afford to pay and has mandated Perella Weinberg, the boutique investment bank, to provide a fairness opinion on any new offer.

But the mood in the MAN camp is downbeat after VW rejected its offer last week. Failure of the offer by the deadline is regarded as a possibility.

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