Plan to Merge Volvo, Renault Abandoned : Autos: Strong opposition by shareholders in Swedish company leads to termination of proposed deal.
The planned merger between France’s Renault and Sweden’s Volvo, which would have created the world’s sixth-largest car maker, ran aground Thursday with the resignation of Volvo’s chairman, a key architect of the deal.
Analysts said the departure of the chairman, Per Gyllenhammer, and three Volvo board members, effectively killed the merger between two of Europe’s best-known auto makers. The resignations followed growing opposition among Volvo shareholders in Sweden.
The deal had been hailed as an encouraging sign of economic cooperation across national borders during a time of deep recession in Europe. It would have brought together two car makers whose names are national treasures in their homelands. But, in the end, it was Swedish distrust of the French company--and its government owners--that scuttled the deal.
Volvo President Soren Gyll said the merger had been “put aside” and a shareholders meeting to vote on it next week had been canceled when it became clear that the deal would not be approved.
In a statement, Volvo said its board still unanimously supported the merger “and is still of the opinion that it would be the best way, long-term, to secure the development of the Volvo automotive operations.”
But, it added, “the negative attitude of the shareholders” had made it “very unlikely” that the deal would be approved. As a result, it said, it was withdrawing the proposal.
“I have finished my mission,” Gyllenhammer said. “I have a strong belief in Volvo’s future in a merger with Renault and that is why I have decided to leave Volvo’s board immediately.”
Swedish investors were concerned about the timing of French government plans to privatize Renault. Until the company goes private, they argued, it would be impossible to know its true value. The French government has said it would sell the company next year, along with 20 others still to be privatized, but only if economic conditions were favorable.
Swedish stockholders also were concerned about merger provisions that would have given Renault, which is four times larger than Volvo, 65% of the new company. French government ministers have said the majority share would be used only to keep outside companies from gaining control. They noted that Volvo still would have veto power over major decisions.
But some Volvo shareholders were unconvinced. They feared the French would use their majority share to reduce Volvo’s say in the new company.
The merger’s failure may also have destroyed a profitable 3-year-old partnership between the two auto makers, who together have an annual revenue of about $38 billion and sell 2.4 million cars per year. Under the partnership, the two shared research and purchasing operations and also held stock in each other’s companies.
Renault “has justly lost confidence in Volvo” management, Gyllenhammer said. And he added that Volvo’s managers “have turned their backs on Europe.”
The merger, to have taken effect on Jan. 1, would have given both companies “clout and power,” creating a combined work force of 200,000 and saving nearly $5 billion over the next seven years, Gyllenhammer had said in announcing the deal in Paris in September. Renault officials said it would help the companies compete more effectively in Europe against Japan, which holds 12% of the Continent’s car market.
Only General Motors, Ford, Toyota, Volkswagen and Nissan would have been larger than the combined Renault-Volvo. And Renault-Volvo would have been the world’s second-largest truck manufacturer, behind Germany’s Mercedes-Benz.
Volvo, which lost $435 million last year, has eliminated more than 3,000 jobs this year. Renault, which was bailed out by the French government in 1986 following years of losses, has become one of the healthiest auto makers in Europe. Last year, it earned $1 billion on sales of $26.7 billion.