Their planned partnership soured with Japanese auto maker accusing VW of seeking to control it and filing for arbitration in November 2011. VW’s stake, acquired in January 2010 for €1.7 billion ($1.9 billion), was worth some $3.8 billion at Friday’s closing price.
Both companies said they welcomed the clarity offered by the ruling from the International Court of Arbitration of the International Chamber of Commerce, which partially upheld the German company’s counterclaims of breach of contract.
“It used to feel as if a small bone were stuck in my throat,” Suzuki chairman and chief executive Osamu Suzuki told a news conference. “I feel so refreshed now.” Suzuki said it foresees no impact on its full-year earnings.
The Japanese auto maker’s shares climbed as much as 4.6% early on Monday, before trading flat. That still outperformed a 1.2% decline in the benchmark Nikkei average. “While we believe investors might react favourably to news of the share buyback, we basically think all of this is already priced in,” JPMorgan analyst Akira Kishimoto wrote in a report.
VW said in a statement it would not know the impact on its balance sheet or profits until it has coordinated the sale of the Suzuki shares. “We have already retained an investment bank and will in the next few days consult with the bank and our lawyers over the next steps to be taken.”
US hedge fund mogul Daniel Loeb urged Suzuki to cancel the shares it buys back, saying the auto maker has enough cash on hand and should avoid issuing equity.
Loeb sent Suzuki shares soaring early this month by disclosing his Third Point Llc fund held a stake. He said at the time the stock was cheap and that the expected resolution of the VW dispute would allow it to make better use of its cash. In a phone call with a small number of media outlets, Loeb said Suzuki should buy the shares at a price not too far from the current price.
Suzuki said it expects to buy back its shares at a “reasonable” price, though it did not elaborate. Takaki Nakanishi, chief executive of Nakanishi Research Institute, which specializes in the automotive industry, said it was “highly likely it will buy back at the Friday closing price.” “For Suzuki, this isn’t that much money,” he added. Suzuki had nearly 1 trillion yen ($8.25 billion) in cash reserves as of the end of March.
Loeb did not mention other specific measures he expected from Suzuki but said he saw a cancellation as a “first next step”. He said he would be happy to meet with management to discuss other “shareholder-friendly steps” to better allocate capital, adding that he had no plans to sell the shares yet.
“At this valuation we’re happy to continue holding,” he said. Third Point has not disclosed the size of its Suzuki stake. Japanese regulation requires ownership of 5% or more to be declared.
The two auto makers agreed to tie up in December 2009, pledging to cooperate on technology such as hybrid and electric cars and on expanding in emerging economies. But the alliance soon faltered. In addition to Suzuki’s fears that VW was attempting to control it, VW objected to Suzuki’s purchase of diesel engines from Fiat.