Volkswagen Pulls Truck Unit IPO in Setback to CEO's Revamp

Date: March 14, 2019
Source: Bloomberg News

Volkswagen AG canceled plans to sell a share of its Traton SE division due to weak market conditions, dealing a setback to the automaker’s plan to generate fresh funds for the heavy-truck unit’s expansion outside Europe.

“We regret that we have to refrain from a stock listing of Traton SE,” Chief Financial Officer Frank Witter said Wednesday. “The management board continues to aim for a stock listing in a better market environment.”

VW decided to delay after a difficult start to the new year for the global automotive industry. In Europe, Traton’s biggest market, the economy is forecast to grow this year at the slowest rate since 2013. Activity has declined in part due to uncertainty surrounding the U.K.’s departure from the European Union and U.S. President Donald Trump’s threats to increase tariffs on European-made cars.

Carmakers including VW are also suffering in China, the world’s biggest auto market and the top region for the company’s sales. A slowdown there has worsened in the first two months of the year, and VW this week said that its growth forecast for the year would depend on improvements in the second half.

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VW was up 1 percent at 145.38 euros at 5:28 p.m. in Frankfurt, after earlier gains of as much as 1.8 percent.

The truck unit decision was disappointing, said Arndt Ellinghorst, an Evercore analyst. The announcement came a day after the VW Chief Executive Officer Herbert Diess and Witter, the CFO, updated investors on the company’s strategy.

“VW certainly takes it responsibility to maximize shareholder value seriously, which we think has been the rationale behind pulling the IPO on current valuations,” Ellinghorst said.

VW on Monday said a listing, valued at as much as 30 billion euros ($34 billion), would be “highly desirable,” while warning of volatile markets and economic uncertainty. The planned minority share sale would have been the biggest in Europe this year.

The IPO, which has been in the works for more than two years, is VW’s most tangible effort thus far to become less centralized and boost efficiency as part of a strategy overhaul through 2025. Gaining fresh funds would help Traton challenge global leaders Daimler AG and Volvo AB in markets outside Europe.

Read: VW Move to Pull Europe’s Largest IPO Casts Shadow on 2019 Market.

The decision is a setback for Diess, who’s under pressure to keep up the pace on a revamp to ready the world’s biggest carmaker for the industry’s transformation to electric cars. VW seeks to gain speed and lower costs to deliver on a plan for 70 electric models by 2028 and keep up profitability.

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