BOSTON: Bain Capital has agreed to buy a controlling stake in Volkswagen AG’s heavy diesel engine unit, ending one of Europe’s most hotly contested private equity auctions.
The buyout firm has entered into an exclusive agreement for a 51% stake in Everllence, according to a statement from Volkswagen, which said the deal strengthens its financial position and will generate proceeds of about 7.4bil (US$8.4bil) for the automaker.
Volkswagen intends to keep a 49% stake in the medium term.
Bain outbid rivals CVC Capital Partners Plc and an EQT AB-led consortium, according to people familiar with the matter who asked not to be identified.
The EQT consortium included major Volkswagen shareholders Porsche Automobil Holding SE and Qatar Investment Authority.
The announcement confirms an earlier report from Bloomberg News.
Everllence is one of the world’s leading makers of two-stroke marine engines used in vessels responsible for roughly 90% of global trade.
The other main player in the industry is Wartsila Oyj, whose biggest shareholder is Sweden’s Investor AB.
Private equity firms are showing increased appetite for industrial assets as they seek havens from volatility in their long-favoured software sector. Bankers have been working on debt financing of as much as 6.5bil to back the Everllence deal, Bloomberg reported previously.
Volkswagen is selling Everllence in an effort to streamline its operations and boost profitability. Proceeds from the sale will give Europe’s biggest carmaker a lift amid a deepening downturn in its most important market in China. — Bloomberg
Volkswagen chief executive officer Oliver Blume this month said the manufacturer’s decades-long strategy in developing and making cars in Europe isn’t working anymore.
High costs, US tariffs, the transition to electric vehicles and growing competition from China’s BYD Co are sapping profits needed to invest in fresh products.
The deterioration has left Volkswagen searching for more ways to shed costs, on top of an existing plan to slash around 50,000 jobs in Germany by the end of the decade and reduce carmaking capacity.
The company’s issues are mirrored elsewhere, with BMW AG recently making a deeper-than-expected cut to its outlook for the year following weak sales in China, and Mercedes-Benz Group AG also seeking additional savings in order to stay competitive.
Volkswagen’s efforts to streamline its sprawling portfolio of industrial assets have faced challenges from the company’s byzantine ownership structure.
While the controlling billionaire Porsche-Piech clan are in the driver’s seat, major decisions require support from labour leaders sitting on its supervisory board. The German state of Lower Saxony also holds a 20% stake.
Decision-making can be slow and cumbersome and internal power struggles often spill into public view.
