Spin-Offs Could Generate Value Of $100 Billion – Report
VW, Daimler Trucks, Porsche, Volvo Could Be Candidates
The European industry finds itself in healthy shape after the Geneva Car Show, and investment researcher Jefferies expects an increasing interest in smaller companies as the big ones eschew ego driven claims to be the world’s biggest in favour of spin-offs to enhance shareholder value.
Jefferies points to possible spin-offs of Aston Martin, Volvo Cars, Porsche, Alfa Romeo-Maserati and VW and Daimler’s trucks.
“For now, we see better returns from undoing old business models than creating new ones,” said Jefferies analyst Philippe Houchois.
Houchois said it is possible to be too big to succeed in a world where size matters less and focus more. The bid to create massive entities producing more than 10 million cars a year, led by Toyota, VW and Renault-Nissan-Mitsubishi, is being questioned by some.
“We see growing evidence that smaller entities may be better positioned to grow well-defined brands and comply with emissions regulations through mix-price and large manufacturers will come under increasing pressure to ‘choose their battles’ and reduce duplication and cross-subsidies as they transition and reallocate capital to new business models,” Houchois said.
Houchois sees spinoffs possible with a combined value of €100 billion.
- Trucks – the long expected separation of big truck business looks set to happen at last with IPOs the likely route. Daimler Truck and Bus is valued at €34 billion and VW’s Scania-MAN at €16 billion
- Autos – Volvo Cars and Aston Martin IPOs look increasingly likely. Volvo could be valued from between €6 billion and €21 billion, while Aston Martin could fetch up to €5 billion.
- Logical auto spinoffs include FCA’s Alfa-Maserati could be worth up to €6 billion, while Porsche could be worth between €40 and €50 billion.
Citi Research isn’t so sure and reckons the enthusiasm for spinoffs is actually receding.
“Break ups – not for now thanks,” said Citi Research analyst Michael Tyndall in a recent research note.
“It now seems investors are less enthused about the prospect of imminent break-ups. Some of our peers are heavily broking the idea, but as we have pointed out previously co-determination in Germany makes corporate restricting more complex,” Tyndall said.
Co-Determination provides for equal representation on the boards of directors of workers and representatives of stockholders.
Tyndall said also there is a possibility of capital gains tax liabilities in Germany. Spin-offs can unlock some value, but aren’t a core reason to own stocks.
Sales up 4.8 per cent
Meanwhile, according to UBS, in the first two months of 2018, sales in the E.U. big 5 markets were up 4.8 per cent compared with its forecast for the year of 1 per cent growth.
As well as its thoughts on spin-offs, Jefferies also said consolidation remains an industry theme, while the need to transition to new business models might well trigger bold decisions, like GM’s to leave Europe.
“We think the industry will increasingly question traditional pillars such as the future of brands, the value of financial subsidiaries and the breadth of product ranges,” Jefferies’ Houchois said.