German automaker Volkswagen AG and its Japanese peer Suzuki Motor Corp. (SZKMF.PK) Wednesday said that they signed a framework agreement as part of establishing a comprehensive partnership. Under the deal, Volkswagen will purchase 19.9% of Suzuki's issued shares and will likely become the largest shareholder of Suzuki. The closing of the transaction is expected to occur in January 2010.
In a separate announcement, Suzuki said that its directors at a board meeting held today adopted a resolution to make a third-party allotment of treasury shares to Volkswagen. They have also decided regarding the business alliance and the cross-holding of shares.
The treasury shares to be transferred in the transaction are the shares that Suzuki repurchased on the market and held in order to avoid market disruption when General Motors, one of Suzuki's major shareholders for over twenty five years, sold its shares of Suzuki on the market in March 2006 and November 2008.
Suzuki said that it will transfer 107.95 million ordinary shares to Volkswagen at a price of 2,061 yen per share from January 15, 2010 to February 15, 2010. The company will procure 222.48 billion yen through the share transfer.
The per share price represents a 10% discount against Suzuki's closing share price of 2,290 yen on the Tokyo Stock Exchange on December 8, the business day immediately preceding the day of the meeting of the board of directors. It also represents a 4.6% discount against Suzuki's average closing share price of 2,160 yen per share during the one-month period ended on December 8, a 3.6% discount against the company's average closing price of 2,138 yen per share for the three-month period, and a 5% discount against the average closing price of 2,169 yen per share for the six-month period.
Suzuki intends to invest up to one half of the amount received from Volkswagen into shares of Volkswagen. Both companies will also form a long-term strategic partnership to support their strategies in the challenging times.
The companies said that they plan a joint approach towards the growing worldwide demand for more environmentally friendly vehicles. The companies' management have concluded that the complementary strengths of each company make for a perfect fit in exploiting their respective advantages as well as rising to the challenge of the global market.
Volkswagen and Suzuki also stated that the partnership marks an important step towards the future for the companies in terms of global presence and product diversity. The companies also complement each other in terms of product portfolio, global distribution and manufacturing capacities.
Further, the companies said that they are focused on achieving synergies in the areas of rapidly growing emerging markets as well as in the development and manufacturing of innovative and environmentally friendly, fuel efficient compact cars.
As per Suzuki, it will receive technology from Volkswagen, and in the medium-to-long term, the partnership has the potential to enhance its competitiveness and further business development. From the funds procured from the third-party allotment of shares, 122.48 billion yen will be used for the company's research and development expenses focusing on environmentally friendly, next generation technology for four-wheeled automobiles. The company will also use 100 billion yen for the reduction of interest-bearing liabilities to improve Suzuki's financial position.
Suzuki expects to implement the reduction of interest-bearing liabilities during the current financial year ending on March 31, 2010. In the medium-to-long term, the funds are planned to be invested in low-risk financial products until they are used, the company noted.
Suzuki also stated that the transaction's impact on its short-term and full-year results will be minor.
SZKMF.PK closed Tuesday's trading at $26.35.
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