Friedrich Merz, the conservative politician who has a shot at becoming Germany’s next chancellor, published an article this week that urged his country to get more of its citizens to invest in the stock market.
His intervention seemed a touch self-interested: Merz chairs the German arm of fund manager BlackRock Inc. He does have a point though. Only one out of six Germans owns shares. Most prefer to put their money in savings accounts, which have generated next to nothing in returns for a decade.
Volkswagen AG’s initial public offering of its Traton SE trucks business won’t do much to bring about the revolution sought by Merz. Late on Thursday, Europe’s biggest auto manufacturer confirmed it will part with only a small stake in the spinoff, which will have a free float of 11.5 percent at most.
While Traton will be one of Europe’s biggest listings this year, the so-called “people’s carmaker” isn’t creating another “people’s share.” (That’s the name adopted by Deutsche Telekom AG for its massive IPO 20 years ago, when huge numbers of citizens bought shares. The subsequent dotcom bust and drop in Telekom’s stock is one reason why Germans shun the market today).
Nevertheless, the spinoff will be welcomed by VW’s minority shareholders, who are unhappy about the company’s hefty “conglomerate discount” (where the group is valued less than its combined assets). If Traton goes well, maybe other big VW brands could be hived off from the parent.
VW isn’t being especially aggressive on pricing as it tries to make sure the IPO succeeds. The 15 billion euro ($16.9 billion) valuation – at the the midpoint of the IPO range – is well below the 25 billion euros mooted in the press earlier this year. Truck-making rival Volvo AB trades on 9.5 times last year’s earnings. Applying the same multiple, Traton would be worth about 13.5 billion but its profitability has some room to expand as it increases parts sharing between its Scania and MAN brands. The company is targeting a 9 percent operating margin over the long term, compared to 6.4 percent last year.
Having already suspended the IPO process once this year, ostensibly due to poor market conditions, VW is right to be careful. While stock markets aren’t far off record highs, investors everywhere have grown more skittish. The volatility of Uber Technologies Inc.’s shares since its May stock-market debut shows it makes sense not to be greedy.
With only up to 1.9 billion euros of anticipated proceeds, selling more stock or aiming for a higher valuation wouldn’t do much to boost VW’s coffers anyway. The company already has 16 billion euros of net liquidity, which seems plenty. If it needs more funds, it can always sell more shares in Traton later, while still retaining control. Siemens AG adopted a similar strategy when it sold a 15 percent stake in its healthcare business last year. Those shares have performed well.
From the perspective of a VW investor, the crucial thing is that the company gets this IPO done. The German giant is rightly criticized for its byzantine governance, where family, employee and regional government interests often take priority. It’s refreshing to see it do something explicitly for its shareholders.
Just as ordinary Germans still need convincing of the wonders of the capital markets, the same could be said for its biggest carmaker. Traton at least promises a change in direction.
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Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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