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Old 19th September 2011, 15:59   #1
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Default VW could buy Suzuki outright!!

The soured relations between VW and Suzuki is common knowledge but now theres news doing rounds that VW can buy Suzuki rather than continue with a struggling alliance.

The fact that Suzuki has openly declared that the alliance is not working and they find it easier to source diesel engines from Fiat, who incidentally had a recent war of words with VW when they declared that Alfa Romeo (Fiat's struggling luxury car division) could also come under the German giants umbrella.

With twice the revenue of Suzuki there is little doubt that VW has the financial muscle to pull of such a hostile take over. At the initial stages of the alliance when VW purchased the 20% in Suzuki the agreement was that the German company will not increase their stake without the Japanese companies consent.

Now though with the alliance at the verge of collapse, VW are free to buy their way into a fatter stake in Suzuki. They have already declined any interest in giving up the 20% stake despite Osamu Suzuki's request. VW chairman Ferdinand Peich is legendary for his arm twisting tactics and an excellent example is how he turned around Porsche's attempt to buy VW and ended up owning the sports car maker instead. The saying in the Auto circles is 'what Peich wants, Peich gets.'

It is Suzuki who will have to tread carefully now. It is still a giant in India and this is what interests VW the most. Instead of gradual growth in the market VW wants instant access to Suzuki's production and sales power. India is Suzuki's cash cow and its trump card, the existing labor problems do not help it though. This corporate saga will be one to watch out for.

sources:
http://uk.reuters.com/article/2011/0...78H1AI20110918
http://www.bloomberg.com/news/2011-0...egel-says.html

Last edited by shortbread : 19th September 2011 at 16:01.
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Old 19th September 2011, 16:33   #2
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Default re: VW could buy Suzuki outright!!

VW should learn from WWII. Japan was suffering so much destruction, that any nation at that time, barring USSR and US would have laid their arms down. But Japan was a different story. The Americans could not believe that Japan can be so tough.

Suzuki is on similar lines. They will give it a fight till the end. Suzuki's strengths are Asian markets and mainly image. The two wheeler division is doing rather good and has an image for itself, this is a hidden support pillar for Suzuki.

Mr. Peich should learn a few history lessons, porsche takeover and everything wont help them remain at top unless its backed by solid image, engineering and after sales. Take for instance India. Polo is not able to even get near the sales of i20, let alone Swift.

VW wants to be world leader in sales, but its not that easy and its method of takeovers path to get to top can help only when they have complete monopoly in the market. A resurgent Ford, GM along with determined Renault-Nissan, Hyundai and Honda ( add silent players like PSA and Fiat ) wont make the game easy.

VW, go deeper than your tactics of using muscle all over. Hitler did similar mistake, I hope Suzuki does not end up under umbrella of Toyota or Ford or even GM for that matter. Then the game will be totally against VW.

VW with moves like this is taking a short cut IMO for Asian markets.

Last edited by aaggoswami : 19th September 2011 at 16:35.
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Old 19th September 2011, 17:03   #3
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Default re: VW could buy Suzuki outright!!

Obviously Osamu Suzuki wants to end the relationship with VW. The clause that throws a spanner in the works is that he has to end the relationship only after repurchasing the ~20% stake VW holds in Suzuki. As long as the partership is active, VW cannot increase stake in Suzuki from current levels without the consent of Suzuki. If Suzuki cancels the partnership without repurchasing VW's stake then the later will be free to increase the stake.

As rightly pointed out, VW seems to be more interested in MSIL and its market share in India. It is generally assumed by the pundits that a take-over will be beneficial to the end customer ultimately. It is not clear what VW will bring to the Indian car buyers that they don't already enjoy through this move.

Suzuki Japan portfolio includes, apart from automobiles, motorcycles, marine and power products, and financial services as well. I guess VW's interests is more focused on the automobiles division and consequently what will happen to the rest is anybody's guess.

VW wants to become the world's largest automobile maker. But instead of working hard they choose to piggyback on others' successes. Porsche takeover might be a masterstroke - that might have made them overconfident. Markets like India are a different ball game altogether. Hope Suzuki does not become VW's waterloo.

I don't know the shareholding pattern of Suzuki Japan. Can anyone throw light on this? The takeover bid might pan out depending on who holds how much in Suzuki Japan. Taking management control of MSIL alone will be impossible for VW as more than ~54% stake is held by Suzuki.
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Old 19th September 2011, 17:20   #4
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Default Re: VW could buy Suzuki outright!!

For all you know the VW may be more interested to capture the existing market share leadership of MSIL .there are positives and negatives to this
Positive
MSIL will benefit in terms of build and technical work quality
global expertize will be ingrated
VW badging for MSIL products

On the flip side
given VW stature they should be trying to get organic growth in the Indian market rather than growth by acquisition(especially when strong armed and twisted)
MSIL may halt production which will impact buyers and MSIL image
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Old 19th September 2011, 17:32   #5
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Default Re: VW could buy Suzuki outright!!

The company with worst A.S.S in India wants to take over the company with best A.S.S in India. This is really scary for Indian customers. As we all know corporate culture trickles down from the top.

I hope Japan has some rules against hostile takeover of a Japanese company from foreign companies.
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Old 19th September 2011, 17:35   #6
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Default Re: VW could buy Suzuki outright!!

Quote:
Originally Posted by Samurai View Post
The company with worst A.S.S in India wants to take over the company with best A.S.S in India. This is really scary for Indian customers.
Tell me about it! Am in a panic since I saw this thread. If VW AG can scrw up service experience for Lamborghini owners who shell out 8 figures can you imagine what they will do to us poor Swift and M800 walas?

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Old 19th September 2011, 17:40   #7
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Default Re: VW could buy Suzuki outright!!

Suzuki should be able to defend itself strongly if VW tries a hostile take over. I assume that atleast 50% of shareholding should lie with Japanese folks and they would be reluctant to hive off the same to VW. Secondly, if I'm correct, it was Porsche which Tried taking over VW first and that bid resulted in a financial mess for Porsche. Then VW stepped in and took over porsche.
I would prefer that suzuki remains alone as it would then be constantly upping the ante on Value for money cars on every other manufacturer. If VW takes over, it could slowly ensure that there is no internal competition between suzuki, vw and skoda and might try to reduce overlaps in its product line.
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Old 19th September 2011, 18:09   #8
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Default Re: VW could buy Suzuki outright!!

Quote:
Originally Posted by Dieseldunk View Post
For all you know the VW may be more interested to capture the existing market share leadership of MSIL .there are positives and negatives to this
Positive
MSIL will benefit in terms of build and technical work quality
global expertize will be ingrated
VW badging for MSIL products

On the flip side
given VW stature they should be trying to get organic growth in the Indian market rather than growth by acquisition(especially when strong armed and twisted)
MSIL may halt production which will impact buyers and MSIL image
Globally, is VW build quality really that superior to Suzuki?

Suzuki has a global leadership in small cars that VW aspires to. They come from different design philosophies -- and as Samurai pointed out, maybe service as well.

I don't really see this marriage working.
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Old 19th September 2011, 18:20   #9
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Default Re: VW could buy Suzuki outright!!

Japanese companies are traditional family-held. I am not sure how VW can bridge that gap to then be in a better position to actually purchase Suzuki !
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Old 19th September 2011, 18:20   #10
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Default Re: VW could buy Suzuki outright!!

Mate me too hope for the same

anyways this seems to a divorce before marriage between a illustrious japanese business firm and a vociferous german auto giant
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Old 19th September 2011, 18:30   #11
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Default Re: VW could buy Suzuki outright!!

Quote:
Originally Posted by motorworks View Post
I would prefer that suzuki remains alone as it would then be constantly upping the ante on Value for money cars on every other manufacturer. If VW takes over, it could slowly ensure that there is no internal competition between suzuki, vw and skoda and might try to reduce overlaps in its product line.
Precisely! You succinctly put what is in my mind - what does this takeover bring to the end customer? This looks anti-competitive to me in that it may result in reduced choices for the customers (from an Indian market viewpoint). VW wants to earn market share through shortcuts. Remember the TV ad that says "you don't buy a bournville, you earn it"? Likewise VW should not buy market share, it should earn it.
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Old 19th September 2011, 20:45   #12
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Default Re: VW could buy Suzuki outright!!

I shudder to think of what will happen to MUL in such take over. Skoda A.S.S. with its low numbers is bad enough, MUL if it goes Skoda way will ensure a swift death of the company, to extreme delight of the Japanese and Korean competetors. Jokes apart, as pointed out, such a take over has extremely low proability. The Japanese conglomorates will close ranks rather than allow a Foreigner to buy one of them.
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Old 19th September 2011, 20:56   #13
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Default Re: VW could buy Suzuki outright!!

Volkswagen is the single largest shareholder in Suzuki, followed by a number of Japanese institutions and a trust. It will be interesting to see what happens. Japanese banks hold a pretty sizeable chunk of Suzuki and the key to the company lies in their hands. Also, Osamu Suzuki's direct stake is a small 0.1 percent AFAIK.

Last edited by djpeesh : 19th September 2011 at 20:57.
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Old 19th September 2011, 21:10   #14
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Default Re: VW could buy Suzuki outright!!

Quote:
Originally Posted by shortbread View Post
...
VW chairman Ferdinand Peich is legendary for his arm twisting tactics and an excellent example is how he turned around Porsche's attempt to buy VW and ended up owning the sports car maker instead. The saying in the Auto circles is 'what Peich wants, Peich gets.'
Hi,
Correct me if I'm wrong, but I thought the Porche takeover of VW was a very friendly (read crony) deal worked out to keep it all in the family. Which got unstuck when Porche ran into financial difficulties, and VW bailed them out by taking over Porche. (Family looks after each other!)

Regards
Sutripta
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Old 19th September 2011, 23:01   #15
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Default Re: VW could buy Suzuki outright!!

@ Sutripta,

On paper thats what it looks like but the real story is quite different. I really like these stories of corporate battles

There are two families here Porsche and Peich, who together own one half of Porsche. Now the battle has two sides, it was Ferdinand Peich vs Wolfgang Porsche/Wendelin Wiedeking. Wiedking is the genius who turned Porsche around and made it one of the most profitable car companies by start of the new millennium. It was his teams master-plan to buy a majority in VW by using Porsche's cash reserves and other loans, and once the takeover is complete use VW's cash reserves to pay of the loans. Brilliant isn't it!!

This meant that the Porsche/VW combo will be under the rule of 'Wolfgang Porsche/Wendelin Wiedeking's team. This will not work for Peich and he started to influence parties who had voting rights in VW. Once Porsche started buying slowly into VW the world woke up and the German companies shares shot through the roof, this also meant Porsche's balance sheets showed huge profits albeit built up on debt.

When it came to paying of these debts, Peich stayed out of the voting and also influenced other parties especially the state of Lower Saxony (who has veto rights as per some ancient VW law). All this debt and an ensuing economic crisis (funding/loan difficulties) meant Porsche bit more than it could swallow.

A deal was struck under Peich wherein VW will save Porsche and both families will end up with literally 50% of this VW/Porsche combo. He also ensured that Wendelin Wiedeking was out (after a payout of approx INR 300+ crores) of the company and his way.

Peich is this kind of aristocratic alpha male (I have never met him, this is what I read from various sources) who has successfully and sometimes violently brought in many brands under the VW umbrella. VW vs Suzuki is definitely a David & Goliath story and Peich is definitely the villain here.

But let us not deny the fact that Suzuki shot itself in the foot when it decided to give a 20% stake to VW. What did they expect form a company with such history?!!
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