Volkswagen’s brutal jobs cull sparks prospect of sale of crown jewels
Manufacturer squeezed €10bn valuation from cloak-and-dagger Everllence auction but may need more to fund restructuring
Volkswagen chief executive Oliver Blume had less than 48 hours to celebrate the lucrative sale of the carmaker’s €10bn marine engines division before the deal was overshadowed by his plans to axe up to 100,000 jobs.
The sale of a majority stake in Everllence and the scale of the cost-cutting plans revealed last week underline the urgency at Volkswagen as it fights fierce competition from insurgent Chinese brands and adapts to the shift to electric vehicles.
Under the strain of these industry-defining challenges, Volkswagen’s share price has fallen by almost half since Blume took the helm in September 2022, prompting Germany’s largest carmaker to take radical action.
The job-cutting plans reported on Friday, and due to be presented to VW’s supervisory board next month, would be one of the biggest lay-off programmes in corporate history — surpassing brutal culls at General Motors and IBM in the 1990s.
Blume now faces the task of pushing through the huge cuts and deciding whether other VW assets should be sold to meet the resulting restructuring costs and reduce debt, while still ensuring the group makes the investments needed to develop its next generation of vehicles.
VW’s plan to remove almost one in six of its 625,000 jobs and to close four factories emerged less than two days after the carmaker concluded a hotly contested auction for Everllence that drew interest from top private equity groups.
But any gains booked from the sale could be wiped out by the cost of implementing the new restructuring plan, making it unlikely that VW will boost shareholder dividends, said UBS analyst Patrick Hummel.
“There is a very high likelihood that we will see additional restructuring charges emerging in the second half of the year that could be in the billions [of] euro range,” Hummel said. “All the excitement around the Everllence transaction is pretty much gone from an equity holder standpoint.”
The carmaker managed to reap a near-€10bn valuation including debt for Everllence in a cloak-and-dagger auction, according to people familiar with the matter — significantly more than the €6bn expectation when the process kicked off last year.
VW did not disclose the overall value of the deal with US private capital group Bain, stating only that it generated €7.4bn in proceeds from the majority stake sale including debt. It generated that sum despite selling only a 51 per cent stake at a €10bn valuation because the deal used financing arrangements that increased the unit’s debt, said two people with knowledge of the details.
Its success in extracting such a high valuation — and the likely costs of its restructuring alongside heavy investment to compete with Chinese rivals such as BYD — have fuelled questions among investors and advisers about whether VW will attempt further asset sales and how it will deploy the funds.
The dilemma over further sales comes as investors seeking shelter from the AI-driven sell-off in sectors such as software show renewed interest in industrial assets.
Volkswagen has signalled that it could offload more non-core assets including stakes in battery unit PowerCo and its autonomous driving unit ADMT. It has already cut its stake in truckmaking unit Traton.
The positive view is VW will use proceeds of any sales for investment, while the sceptical take is that the money will simply finance continued inefficiencies, one person close to the company said.
VW investors will hope that any new sales will be as profitable as the Everllence auction. The near-10-month process — codenamed Project Nikolaus after German engineer Nikolaus Otto, a 19th-century pioneer of early gasoline-powered engines — ended with Bain trumping bids from private equity rivals CVC and EQT.
People close to all three bidders — codenamed Denmark, Spain and UK — said the auction had generated lucrative returns for VW and would go down as one of the most memorable in recent German dealmaking. One bidder said the auction process had been “brilliant”, adding: “I’ve never seen anything like it.”
The auction culminated late on Wednesday night as the company’s management and supervisory boards considered the offers. The suitors had handed in sealed bids with their best and final offers in the lobby of VW’s law firm, Linklaters, in Frankfurt at 7am that morning.
Bain, CVC and EQT had already been required to visit separate notaries the previous day, completing legal formalities in advance to speed up the signing of the deal once a winner was chosen. As they waited for a decision on Wednesday, each suitor returned to their separate notaries to await word from VW’s advisers, which included Goldman Sachs and JPMorgan.
The unusual process was also intended to reduce the risk of leaks. Other precautions included asking VW’s own supervisory board members to hand over their mobile phones before they gathered at the carmaker’s Wolfsburg base to consider the final bids.
Another reason for the sealed bids was to address fears that EQT had an unfair advantage after teaming up to bid with VW’s major shareholders Porsche Automobil Holding and Qatar Investment Authority, the people said. Several members of VW’s supervisory board with connections to those shareholders were required to recuse themselves from deciding between the bids.
These steps were sufficient to convince the bidders the process had been fair, while driving up the valuation, said two of the people with knowledge of the process, who added that the bidders had racked up legal and consultancy costs of more than €10mn in a sign of their appetite to buy the unit.
In the end, all the bids valued the business close enough to €10bn to make non-financial aspects tip the scales, according to people familiar with the matter.
While all three parties had agreed similar job and site guarantees for Everllence until 2030, Bain’s overall package was deemed best based on its proposed price, shareholder agreement, sale and purchase contract and value creation plan, the people said.
The US firm also had a better reputation among the pivotal union and works council representatives. CVC, which had the backing of Canadian pension funds on its bid, was viewed as having been more aggressive on cost-cutting in the past, according to three of the people.
Bain also brought in its Asian team, which has expertise in the continent’s massive shipyards, and was willing to shoulder more of the potential risks and costs related to a Japanese probe into engine manufacturers over fuel consumption data, according to two of the people.
Bain declined to comment on the potential risks of the probe. Everllence said it did not manufacture the engines under investigation and was “not aware of any claims for damages or regulatory proceedings against Everllence or its employees in connection with this matter”.
Following the success of the Everllence auction in stoking competition between bidders, advisers are hoping that recent pitches to VW to sell crown jewels such as its motorcycle brand Ducati — an idea it explored in 2017 — or to list supercar maker Lamborghini will gain traction.
Some analysts said the likelihood of VW selling these brands was low and cautioned that offloading lossmaking assets such as PowerCo would be unlikely to be as lucrative as the Everllence sale.
The chief executive of Volkswagen’s US pick-up truck brand Scout told the FT this year that an IPO of that business was also an option. The company is conducting a feasibility study for bringing in outside investors to the Scout brand, one person familiar with the deliberations said.
VW’s bosses are also being forced to consider whether to save money by reducing the amount they invest in some of its businesses, such as PowerCo.
“The best thing would be just to stop investing and accept the fact that what you’ve spent so far are just sunk costs. I think that might be the best financial outcome,” said Hummel.
Volkswagen declined to comment on the potential sale of other significant assets. It said that a decision on how to use the proceeds from the Everllence sale would be taken at a later date.
Holding the cash on its balance sheet could reduce the pressure to keep cutting investments, but management could also face pressure to share the spoils with investors.
“When you look at their profitability and the cash flow in past years it’s not a silly idea to keep it,” said one person close to the company.