Volvo to divest its machine rental business to Platinum Equity for USD1.1 billion
The second-largest truckmaker, Volvo AB, has entered into a definitive agreement to sell Volvo Rents to Platinum Equity for SEK7.2 billion or USD1.1 billion. Volvo said the acquisition of Volvo Rents by Platinum will be through a debt sale, wherein the latter will be acquiring USD1.1 billion of Volvo's net debt. The divestment was a two-prong strategy for the Swiss automaker - to get rid of its unprofitable units and to focus more on its manufacturing business. Volvo Rents is a construction-equipment rental business based in the US.
According to the Gothenburg, Sweden-based company in a statement today, its divestment of the US-based unit will result to a charge of SEK1.5 billion for the last quarter of this year. Volvo also added that the transaction is expected to be concluded in the first quarter of next year.
London-based industry specialist David Arnold at Barclays Plc's investment-banking unit said, "The sale value looks good for a loss-making business. The cash inflow should allow the company to maintain the dividend, albeit in a low-quality fashion."
According to a Bloomberg report, Volvo Chief Executive Officer Olof Persson has been taking measures to shift the company's focus from sales growth to profitability. In 2011, the truckmaker has outlined plans to regain top share of the heavy-equipment industry via significant operating margins and exiting from non-core businesses. Volvo said its Volvo Rents unit recorded an operating loss of SEK47 million in the first nine months of this year.
In a released statement, Persson explained the company's decision to let go of Volvo Rents, "We looked at different alternatives to grow Volvo Rents' business and concluded that the best alternative is to sell the operation to another owner. (The unit) does not have a sufficiently strong connection with the group's core operation to motivate continued ownership."
Platinum Equity CEO Tom Gores commented on its acquisition, saying, "We appreciate Volvo's trust in selling us the business and in our ability to execute a complex carve out." Gores' company is also the owner of the Maxim Crane rental business and electrical-utility equipment provider Nesco.