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Volvo is to sell a low-margin, Japan, and the tractor to the Isuzu in a $2.3 billion deal

TOKYO/STOCKHOLM (Reuters) – sweden’s Volvo AB, will sell the Japan-based UD Trucks company Isuzu Motors, in a deal valued at about $2.3 billion, and the exit of low-margin business, and the promotion of its cash pile, as the competition for high-tech, surface transportation is warming up.

FILE PHOTO: The logo of Swedish car manufacturer Volvo, is to be seen on a Stierli Automobile AG is a company in California. Erhard, Switzerland, April 11, 2019. REUTERS/Arnd Wiegmann

The deal, which was announced by the companies Wednesday, as part of a wider partnership that will see them share the advanced technology of electric and self-driving trucks and using their combined weight to cut development costs.

Volvo’s shares were up 5 percent in morning trading. Isuzu shares had gained 3% during Tokyo trading hours.

The partnership is the latest in a growing trend among vehicle makers are joining forces to better compete in an industry upended by the advent of electric cars, self-driving cars and other emerging technologies.

Volvo said the transaction will add to operating income of approximately SEK 2 billion ($208 million) and an increase in net cash and cash equivalents by SEK 22 billion.

In the Japanese transportation market is highly competitive, and not highly profitable, analysts said that the UD Trucks for sale will free up cash for Volvo and, since it is a competitor of the German Daimler ag, India’s Tata Motors and chinese Dongfeng Motor.

Volvo is one of the world’s largest makers of heavy-duty trucks, as well as, the owner of brands such as Volvo Trucks, France Renault Trucks, as well as the U.S.-based Mack Trucks.

“This is a way to change the focus of the business is strong, and making good money, and at the same time it can be closed with a small profit,” Handelsbanken Capital Markets analyst Hampus Engellau, told Reuters.

Isuzu is a specialist in light-to-medium-sized trucks, while UD Trucks are strong, heavy as well as to a certain extent, in the central part.

The deal is expected to close by the end of 2020, and the consolidation of a stationary truck manufacturing industry in Japan is dominated by Toyota-owned Hino Motors.

For Isuzu, a specialist in diesel engine technology, the partnership will have access to the Volvo, electric truck technology that has been used in the distribution system, and waste disposal trucks.

“We will have to rely on each other’s strengths, pool together when it comes to technology and the use of larger volumes of,” the Volvo Group’s President and CEO, Martin Lundstedt, told reporters in Tokyo.

In norway, DNB Markets, said that the cash from the transaction will be distributed to Volvo’s shareholders, either by way of an extra dividend or buy back shares.

Additional reporting by Chris Gallagher in Tokyo and Johannes Hellstrom in Stockholm; Editing by Himani sarkar and Arun Koyyur

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