VW Should Keep Truckin' Alone
Paccar May Fit With Volkswagen's Ambitions But This Isn't the Right Time for a Deal
You have to wonder about your arch-rival's motives when he starts playing deal maker on your behalf.
The chief executive of Daimler's DAI.XE -0.06% trucks business told a gathering of analysts this week that "serious, multiple sources" had suggested rival Volkswagen VOW3.XE -0.13% was interested in buying Paccar. PCAR +5.44% VW quickly denied interest in the $24 billion market capitalization U.S. truck maker, which makes the Kenworth and DAF brands.
Buying Paccar would fit with VW's undoubted global ambitions in trucks. But shareholders must hope that the German company keeps a cool head when considering such heavy-duty deals.
VW has big plans when it comes to trucks. It has taken control of Germany's MAN and more recently the Swedish truck maker Scania to build a business that made more than 200,000 trucks last year. Buying premium truck maker Paccar would add another 137,000 in unit sales, further narrowing the gap with Daimler's larger volumes. It would also give VW's Europe-weighted trucks business exposure to the U.S. and Canadian heavy trucks market where Paccar has a 28% share.
Funding the deal also looks a stretch for VW. It has historically raised equity to do deals rather than dig into its cash pile, which it claims it needs to protect its all-important credit rating. But VW just asked preference shareholders for €2 billion ($2.7 billion) in fresh equity and sold a €3 billion hybrid bond to fund its buyout of minority investors in Scania.
It would need to tap preference shareholders again for Paccar. In theory, VW could raise up to €18 billion in new preference shares at the current share price, according to ISI Group. But it can't issue more ordinary shares unless the state of Lower Saxony, which can't be diluted below 20%, pitches in.
Whatever its rivals say, now doesn't look the time for VW to back up the truck for a big deal.