The rumor mill is working overtime in this time of merger mania that BMW is in talks to purchase Volvo from Ford. If you will remember, Ford is in dire financial straits and has already sold Aston Martin to David Richards of Prodrive. Will Volvo be next on the auction block? BMW has denied that it is interested. We'll see if this is so. BMW did not have so much luck with its previous acquisition of MG Rover, so this new rumored deal leaves some scratching their heads in wonderment. From MarketWatch:"I don't really think it's a good fit," said David Healy, an auto analyst at Burnham Securities commenting Tuesday on reports in the Financial Times and online edition of Sweden's Goteborgs Posten over the weekend that the German car maker is taking a hard look at Volvo's balance sheet."There would be an awful lot of overlap in the models, especially at the high end," he added.
Healy also doubted BMW (DE:519000: news, chart, profile) and Volvo would be able to mesh what he called their very tight organizational structures, raising the specter of a corporate culture clash akin to the one seen when Daimler-Benz's took over Chrysler.Analysts also question whether BMW would take the plunge given its ill-fated acquisition of Rover back in 1994. BMW eventually quit its money-losing foray into British car-making by splitting up the company, with the luxury brand Land Rover ending up alongside Volvo and Jaguar in Ford's Premium Auto Group.
Meanwhile, BMW sold the trademark Rover name to a company in China, keeping the Mini brand for itself. BMW has since steered clear of the mergers and acquisition frenzy that marked the auto industry over the past decade, mindful that most deals failed to meet investors' expectations.
If Ford were to sell Volvo, Healy said Renault/Nissan would likely make a better match than BMW. The French-Japanese car maker has long been seeking to build up its presence in the top end of the market, and Volvo would complement its current stable without squeezing out existing models.
Others mentioned as possible Volvo buyers include France's Peugeot, Tata Motors of India and even Magna International/Russian Machines - a Canadian-Russian alliance forged earlier this month. See full story.
And then, there's always the possibility of a private equity group lurking in the wings like Cerberus Capital Management, which two weeks ago secured an 80% stake in Chrysler for a cool $7.4 billion. See full story.
Executives at both Ford Motor (F) and BMW said on May 29 that there have been no formal discussions between the two companies about the German carmaker acquiring the ailing U.S. automaker's Volvo car business. The possible sale was initially reported by Swedish daily newspaper Göteborgs-Posten and then Financial Times of London.
Executives talked to BusinessWeek on and off the record about the reports, insisting that there have been no deal discussions at the top of the company. But a BMW executive speaking not for attribution said it was "certainly possible that BMW had been studying an acquisition of Volvo as a matter of normal business planning when we know a business is potentially for sale."
Ford spokesman Tom Hoyt said: "Ford is not in discussions with BMW or any other company regarding Volvo. We have seen this kind of speculation for the past year, as Ford has been assessing our operations and portfolio—as any good business does and we will continue to do."
Ford is undergoing a massive restructuring after losing $12.6 billion last year. Its Premier Auto Group (PAG), which is made up of Volvo, Jaguar, and Land Rover, lost $327 million last year. Last year's results also included Aston Martin, but Ford sold 90% of that brand to an investment group, Prodrive, earlier this year (see BusinessWeek.com, 3/13/07, "After Aston, Could Jaguar Be Next?"). Ford does not break out profit figures for its individual brands, but Ford executives say privately that Volvo closed out last year around break-even. Jaguar lost money. Land Rover posted an operating profit.
Executives at Ford and BMW described any communication between the two companies as "exploratory." Of the three PAG brands, Volvo is the most valuable to Ford, according to industry consensus. Merrill Lynch (MER) estimates that all three brands could bring Ford more than $9 billion. Between $7 billion and $8 billion of that would come from Volvo.
The reasons for potentially low prices for Jaguar and Land Rover are their expensive labor contracts as well as a strong currency in Britain, where all the vehicles are all made. That makes them undesirable from a financial standpoint to Ford as well as to potential suitors...
While it is somewhat surprising that Ford would be interested in selling Volvo, it is far more surprising that BMW would entertain buying it. BMW, one of the steadiest and most consistently profitable automakers in the world, nearly came undone in the 1990s over its purchase of the British Rover Group. BMW acquired Rover, Land Rover, and Mini, and lost, by some estimates, in excess of $10 billion before jettisoning Rover to an investment group for no money and Land Rover to Ford. It retained Mini, which has been a huge sales hit for BMW worldwide as the Munich-based automaker remade the Mini Cooper runabout and brand with German know-how (see BusinessWeek.com, 5/29/07, "Super Duper Mini Cooper").
BMW Chairman Norbert Reithofer, who took over from Helmut Panke last year, is facing sales-growth issues. There are differences of opinion as to how the iconic German brand will increase sales and profits in the future. Though the company has added 1 Series small cars to its lineup over the past three years and is planning to launch a multiactivity vehicle, there is worry in some quarters that the BMW brand is getting filled out, and that jamming more vehicles into the lineup could water down its valuable brand equity in the premium price categories.
Acquiring Volvo would give BMW a relatively healthy global brand that needs financial discipline, manufacturing efficiencies, and brand marketing know-how in order to make it more profitable. Volvo cars and SUVs are engineered to be front-wheel drive, while all BMW vehicles are rear-wheel drive. While it is unlikely that BMW would ever build a Volvo and BMW off the same engineering platform, there could be enormous savings from co-developing engines, electrical systems, telematics, and the like. BMW, too, would not hesitate to build Volvos outside of Scandinavia, a move Ford has not yet done to save on manufacturing costs.
