Daimler Charts Leaner Approach -- WSJ
October 17 2017 - 3:02AM
Dow Jones News
By William Boston
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 17, 2017).
BERLIN -- Daimler AG has decided that less is more.
After months of study, the automotive company that owns the
Mercedes-Benz car brand said Monday it is taking preparatory steps
to reorganize, consolidating its five business divisions into three
separate registered companies. The company said the move would give
the units greater entrepreneurial freedom and "better utilize the
potential for growth and earnings" in their respective markets.
The reorganization, which still requires approval from the
supervisory board and shareholders, could set the stage for Daimler
to break up the company into separate publicly listed enterprises
later. Daimler said there were no current plans to spin off
units.
Daimler's announcement comes amid a recent wave of industrial
spinoffs, including announcements last week by Pfizer Inc. and
Honeywell International Inc. to hive off major business units.
Daimler rival Volkswagen AG also unveiled plans last week to
group components manufacturing of its dozen different brands into a
cohesive unit, a first step toward a potential spinoff. Volkswagen
said there were no plans to split off the unit.
Dicing big conglomerates into more manageable businesses has its
advantages, say analysts. The businesses tend to outperform the
broader stock market. Untethered from the larger corporation, they
can become more nimble.
That is an important factor for auto companies that have to ramp
up production of electric vehicles and face competition from
Silicon Valley over the development of self-driving car
technology.
"Whoever aims for sustainable competitiveness and profitability
must continuously evolve and adapt to rapidly changing surroundings
-- technologically, culturally and also structurally," Daimler
Chief Executive Dieter Zetsche said in a written statement.
Daimler now has five separate businesses that generated EUR153
billion ($181 billion) in revenue last year and EUR8.8 billion in
net income. The reorganization plan calls for creating three
independent companies that would be wholly owned subsidiaries of
the parent, Daimler AG.
Daimler would merge Mercedes-Benz Cars and Mercedes-Benz Vans
into one company. It would group Daimler Trucks, one of the largest
truck makers in the world and owner of Freightliner in the U.S.,
and Daimler Buses into a second company.
The third company, Daimler Financial Services, already exists.
The unit consists of Daimler's bank that is used to finance
car-leasing and loans; as well as the company's growing stable of
new mobility services such as the Car2Go car-sharing service, the
largest in Europe.
"We are creating the conditions for greater customer and market
focus and therefore more growth opportunities," Bodo Uebber, the
company's chief finance officer, said in a written statement.
Investors applaud such moves as they tend to create more focused
companies that move faster in their individual markets, offer
strong potential for alliances and acquisitions, and have
management that isn't distracted by unrelated businesses in larger
conglomerates.
Arndt Ellinghorst, automotive analyst at Evercore ISI in London,
said the announcement by Daimler's management "underlines the
commitment for a more contemporary, decentralized and value
enhancing group structure."
Amid growing speculation by investors, Daimler made clear in its
announcement that it had no plans to spin off any of the
businesses.
Yet Mr. Ellinghorst said he didn't think Daimler's rejection of
an eventual spinoff was final. "We do not believe that this rules
out selling (IPO) or carving-out parts of the newly created legal
entities. We would even ask, why go through all this work and spend
the money if there is no intention to lift material hidden value?"
he said in a note to clients.
The reorganization still faces substantial hurdles, especially
from the workforce. To sweeten the deal, Daimler said it wasn't
planning job cuts in connection with the restructuring and that it
would contribute an additional EUR3 billion to the company's German
pension fund in the fourth quarter of 2017.
A final decision on the reorganization would require a vote by
shareholders, which couldn't take place until the already scheduled
annual general meeting in 2019, the company said.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
October 17, 2017 02:47 ET (06:47 GMT)
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