Is Volkswagen’s Renk first in line of potential divestitures?

Frankfurt — Volkswagen is likely to launch the sale of transmissions maker Renk in the northern autumn as the German carmaker streamlines operations to free up funds for investment in electric vehicles, people close to the matter said.

The world’s largest carmaker announced a corporate restructuring in May. It has 12 brands spanning trucks, buses, motorbikes, cars and electric bicycles.

Volkswagen said in May it would explore a full or partial sale, joint ventures or partnership for Renk, which has a market capitalisation of €700m. That comes two years after Volkswagen’s powerful works council thwarted an auction of Renk, which makes transmissions and bearings used in ships and wind turbines.

Renk is 76%-owned by Volkswagen’s family ownership holding Porsche SE, with the rest of the shares widely held.

US investment bank Citi, which also led the 2017 sales process before it was pulled, has been retained as sellside adviser of a company that could be valued at up to €800m, including debt, the people said. They added that the auction was expected to kick off after the northern summer break.

“We are taking our time and are engaging in meaningful discussions,” a person close to Volkswagen said, adding that there would be no firesale of Renk and MAN Energy Solutions.

Volkswagen is expected to market Renk to private equity firms such as PAI, EQT, KKR, CVC, Bain and Advent as well as some peers. Renk competes with Sumitomo Heavy, Mitsubishi, Rexnord, Timken and Allison Transmissions.

The company’s large exposure to the defence industry — which it supplies with transmissions for tanks and gear units for navy ships — will make it hard for buyers headquartered outside Nato countries to acquire Renk, the sources said.

In 2018 Renk posted flat earnings before taxes of €62m on slightly higher sales of €502m, while orders surged 22% to 529-million. Its main peers trade at 6.5-8 times their expected earnings before interest, tax, depreciation and amortisation.

The Renk divestiture is expected to be followed by a sales process for MAN Energy Solutions, which makes diesel engines for use in ships and power stations, and whose separation Volkswagen also announced in May.

Preparations for that process are at an earlier stage and no sellside adviser for the group worth roughly €3bn has been appointed so far but Rothschild is seen in the pole position to bag it, people close to the matter said.

Peers such as Cummins, Wartsila, Mitsubishi, Hyundai, Mitsui or Jenbacher are expected to be targeted at the auction, alongside private equity firms.

Eventually, the sale of motorcycle brand Ducati — also scrapped in 2017 — may also be revived, they said, adding that Volkswagen has also considered other options in the past, such as placing Ducati and the Lamborghini, Bentley and Bugatti brands into a separate entity with a view to listing that company on the stock exchange.

Spokespeople for VW, Citi and Rothschild declined to comment.

Reuters