Volvo to join forces with Renault VI and Mack

VOLVO TO JOIN FORCES WITH RENAULT VI AND MACK AB Volvo and Renault have concluded discussions on a proposed Memorandum of Understanding whereby Volvo will exchange 15 percent of its shares for 100 percent of the shares in Renault's truck business, Renault VI/Mack. The transaction would nearly double the volumes of Volvo's truck business and would by a strengthened global presence and growth potential, create opportunities for added value for customers, employees and shareholders. After authorization from Volvo's shareholders at the Annual General Meeting, Volvo's Board of Directors plans to buy back Volvo shares amounting to 15 percent of the total number of shares in the company. Volvo then plans to transfer these shares to Renault in exchange for Renault VI/Mack. Renault has declared its intention to maintain its shareholding in Volvo for at least three years and has also declared its intention to increase its holding in Volvo over time, to no more than 20 percent. This will be done over the open market. The Nominating Committee in Volvo has notified the Board of Directors that it intends to propose that Louis Schweitzer, Chairman and CEO of Renault, and one other person selected by Renault, shall be elected to Volvo's Board after the deal has been completed. Renault VI's bus business, organized in the Irisbus company that is owned jointly by Renault and Iveco, is not included in the transaction, nor is Renault's holding in Nissan Diesel of Japan. Stronger positions Including Renault VI/Mack, Volvo will become the largest manufacturer of heavy trucks in Europe and the second largest in the world. Following the transaction, Volvo would have a substantial global market presence, with strong positions in Europe and North America. Volvo's and Renault VI's combined market share for heavy trucks in Western Europe will amount to approximately 28 percent and with Mack in North America to approximately 24 percent. Since last year, Volvo has a cooperation agreement in the truck sector with Mitsubishi Motors Corporation. This future cooperation, combined with Renault VI/Mack, would create favorable conditions for implementing aggressive global strategies for growth in established and new markets. "Volvo and Renault VI/Mack complement each other well, both geographically and product-wise. The intended transaction will double our share of the market in North America and will at the same time substantially strengthen our positions in markets in Southern Europe and North Africa. The transaction also, together with the cooperation with Mitsubishi, increases Volvo's competitiveness in the medium heavy truck segment and in heavy diesel engines", says Volvo's Chief Executive Officer, Leif Johansson. "Mack is an ideal partner for continuing expansion of our North American truck operations", Leif Johansson continues. "Mack is one of the world's strongest brands in the industry and it has its own production of engines, which was a very important factor for us. We intend to achieve further critical mass in the engine sector that will permit us to make aggressive investments that will better enable us to meet demands from our customers and from society." "I welcome Renault as a large shareholder in Volvo. Renault is contributing stability in ownership and - with its industrial competence and long experience in the truck industry - it will be able to make a positive contribution to Volvo's continuing growth. I am also looking forward to working together with the employees of Renault VI/Mack who, combined, represent extensive truck experience and industry know-how. The diversity that Volvo gains through this transaction is a valuable asset in our efforts to establish a world-leading and global transport vehicle manufacturer." Louis Schweitzer, Renault's Chairman and Chief Executive Officer, says: "Bringing together Renault VI/Mack and Volvo would set up for the long term Renault VI and Mack's growth and profitability both for their customers and employees. Renault, with 20 percent of Volvo share capital, will play its role in the future of Volvo and thus securing on a long term basis its historic presence in the truck sector under optimum conditions. Renault successfully committed to a global profitable growth strategy. Through its alliance with Nissan, the acquisition of Dacia and its own international growth, Renault has become one of the key players in the world automotive industry. The truck business is part of its strategy." Background and motive The intended integration of Renault VI/Mack represents an important step towards Volvo's objective to create an effective grouping of companies, and resulting shareholder value, by participating actively in the ongoing consolidation of the truck industry. The transport vehicle industry has long been one of the world's most competitive industries. Competition increased during the 1990s, resulting in a stronger trend toward larger and more cost effective constellations. Increasingly severe demands are being imposed on automotive manufacturers to have resources and expertise with which to develop products of the future, at the same time that it is becoming necessary to spread investments over volumes of production large enough to result in economy of scale and resulting competitive levels of costs and prices. Changes in the structure of customers - with fewer and larger customers, expanded demands on products and services to include financing and aftermarket facilities and, not least, a changeover from regional to global markets for both customers and competitors - are important driving forces in this trend. "The intended integration of Renault VI/Mack gives Volvo strength to be able to create added value for dealers and customers", Leif Johansson says. "The three brand names - Volvo, Renault VI and Mack - will be kept separate in their own distribution networks. Volvo will now gain a stronger position relative to competitors, as well as substantial economy of scale in its industrial system. The operations of Volvo and Renault VI/Mack pertaining to powertrain, purchasing and product development will be merged in order to achieve the strongest possible synergy effects. These factors combined will help to create better conditions for growth and profitability and for increasing shareholder value." Renault VI/Mack in brief Renault VI, including Mack, is today the world's fourth largest truck manufacturer, with deliveries that in 1999 amounted to approximately 70,000 heavy trucks and 9,000 medium-heavy trucks. Renault VI and Mack have strong positions in the markets for trucks, primarily, in France and Southern Europe, as well as in North America. Renault VI/Mack's share of the markets for heavy trucks amounts to about 13 percent in both Europe and in North America. In Europe, Renault VI has relatively recently invested in new product programs for both heavy and medium-heavy trucks. Since 1996, Renault VI has launched the "Premium" and "Kerax" heavy truck programs in Europe, as well as the "Midlum" medium-heavy truck. Renault VI's sales in 1999 amounted to approximately SEK 50 billion, with operating income of approximately SEK 1.9 billion. The company has approximately 23,000 employees, of whom approximately 18,000 are in the European industrial and commercial structure. Renault VI would continue to be a company governed by French law with its headquarters and research and development center based in Lyon, France. The proposed transaction will, in itself, not have any immediate impact on employment, but the new entity with its improved competitiveness is well positioned for future growth. Synergy effects The proposed transaction with Renault VI/Mack offers substantial opportunities for cost savings, of which the areas of purchasing and powertrain account for a substantial amount. It is estimated that the total cost savings would amount to approximately SEK 3,500 billion annually after only two years. Over a longer term, the gradual integration of the two companies and their product programs will yield further savings amounting to approximately SEK 3 billion annually. About half of the savings would be achieved in purchasing, but opportunities for major savings have also been identified in the engine sector, by adapting joint engine programs to the different brands. Financial effects The combined Volvo and Renault VI posted pro forma sales of SEK 178 billion in 1999. The pro forma operating income - including goodwill amortization, but excluding items affecting comparability and synergy gains - totaled SEK 8 billion. Pro forma deliveries in 1999 amounted to 151,000 heavy trucks and 13,000 medium-heavy trucks. Volvo's book value for the Renault VI/Mack shares will be SEK 14 billion, which is the average value of 15 percent of Volvo's series A and series B shares during the ten days immediately preceding announcement of the transaction. The transaction involves goodwill amounting to approximately SEK 10 billion for Volvo, which will be amortized over 20 years. Income per share for the Volvo Group during 1999 amounted to SEK 12.40. Including Renault VI/Mack pro forma 1999 income per share increased to SEK 13.10 (including goodwill amortization but excluding items affecting comparability and synergy gains). Conditions The exchange of shares between Volvo and Renault is conditional upon: * the required approval from regulatory authorities, on terms acceptable to the parties. * that contemplated agreements are entered into. Overall time schedule Shareholders at Volvo's Annual General Meeting on April 26, will vote on a proposal to authorize the Board of Directors to implement the share buy- back and the transfer of Volvo shares. Assuming that the Meeting approves such authorization, Volvo - before midyear - will buy back 10 percent of the total number of Volvo's outstanding shares. After approval from regulatory authorities, Volvo will transfer these shares to Renault in exchange for 100 percent of the shares in Renault VI/Mack. Volvo will then make a second share buy-back program and transfer the additional 5 percent to Renault. The parties intend to submit applications for approval for the Renault VI/Mack transaction by regulatory authorities as soon as possible. Assuming that the necessary approvals are obtained, it is expected that the transaction can be effected during the latter part of the current year, at the earliest. April 25, 2000 For further information, please contact: Stefan Lorentzson, AB Volvo +46 31 59 10 90 +46 705 59 10 90 Mats Edenborg, AB Volvo +46 31 59 11 26 +46 708 59 11 26 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/04/25/20000425BIT00200/bit0001.doc http://www.bit.se/bitonline/2000/04/25/20000425BIT00200/bit0002.pdf