Abu Dhabi Investor Becomes Daimler's Biggest Shareholder
March 23, 2009
By Michelle Krebs
Even the seemingly strong and mighty need help in this dismal economic environment as was proven over the weekend when Germany's Daimler AG, parent of Mercedes-Benz, sold nearly $3 billion worth of shares to an Abu Dhabi investment firm. The stock sales will generate much-needed cash for the automaker and give Daimler a single large shareholder to ward off any potential takeover by an outsider.
The two companies announced Sunday night that Aabar Investments PJSC would buy 96.4 million of new Daimler shares for $2.7 billion. Aabar, with a 9.1 percent stake in Daimler, now becomes Daimler's largest shareholder.
Convergence of Factors
Aabar's stake in Daimler illustrates a number of converging factors.
First, the deteriorating global economy and plummeting auto sales have spilled over into the luxury sector, causing luxury car sales and profits for their makers to nearly evaporate
seemingly overnight.
Daimler lost the equivalent of $2.1 billion in the fourth quarter of last year, due to declining sales and expenses related to Chrysler, in which it still owns a 19.1 percent stake it deems worthless and would like to ditch. Similarly, Daimler competitor BMW lost $1 billion in the same quarter.
In the U.S., Daimer's sales of Mercedes-Benz vehicles and smart cars combined decreased 33 percent for the first two months of this year compared with the early going of 2008, according to data from Edmunds.com, parent of AutoObserver.com. The decline came entirely in the Mercedes-Benz brand as smart sales were up.
The luxury car segment also has been clobbered by the troubles in the leasing business. Daimler and BMW have been forced to beef up their loss reserves due to the lower values of vehicles being brought back on lease. In addition, the luxury segment relies more heavily than any other part of the auto business on leasing, which has been substantially cut back because the losses being incurred by automakers on old leases and the lack of financing available for new leases.
Indeed, capital in the capital-intensive automobile business is hard to come by. Traditional sources of capital, notably banks, are not lending, forcing automakers to shop elsewhere for funding -- from governments to other auto companies to investment firms. That has opened the door to previously unlikely and untraditional entries from India, China and the Middle East.
The low stock prices of auto companies offer investors good deals. In fact, even before Daimler's stock price plummeted, there had been much buzz that Daimler was a takeover target, talk Daimler executives have long tried to squelch.
While other European automakers generally have a single large shareholder, Daimler had 92 percent of its stock free float. Before the stock purchase by Aabar, Daimler's largest shareholder was Kuwait, which has 7.6 percent, an amount that drops to 6.9 percent with the newly shares created for Aabar to purchase.
For the past couple of years, concern had been that activitist shareholders would buy a large block of stock and try to shift the company's strategy, including spinning off its truck division, a move Daimler management has resisted.
Indeed, Daimler confirmed, it was Aabar that approached Daimler about the investment in the automaker likely because, in part, because it saw a good deal on a company that is struggling but is an iconic brand that will survive this downturn.
And Aabar admits it got a good deal, in a company with the iconic global Mercedes brand that will survive this downturn. On June 17, Daimler announced a buyback of its stock, then trading at 45 Euros. The automaker has ended the buyback program and on Friday its stock closed at 21.34 Euros. Aabar bought in at 20.27 Euros.
"The best time to invest is when people panic," Khadem Al Qubaisi, chairman of Aabar Investments, told the media in interviews. "We're buying a high-quality asset here" as a long-term investment.
The company's statement announcing the stake said: "Daimler is an iconic brand and a financially strong company. We are delighted to have the opportunity to make this investment and are excited by the commercial potential of our partnership."
What Is Aabar?
Aabar is a relatively young investment fund with its largest stakeholder being the International Petroleum Investment Co., owned by the Abu Dhabi government. It is listed on the Abu Dhabi Securities Exchange. Its Web site shows investments in mostly energy but also infrastructure, real estate, automotive and financial services.
One of Aabar's more interesting investments came in December when it agreed to pay $272 million and assume some of the debt of the Swiss-based private banking arm of the maligned American International Group Inc. (AIG), recently in the news for its massive government bailout after which it paid hefty bonuses to top executives.
"We are delighted to welcome Aabar as a new major shareholder that is supportive of our corporate strategy," Daimler Chief Executive Officer Dieter Zetsche said in the company's statement. "We look forward to working together to pursue joint strategic initiatives."
Those joint initiatives, the companies said, will be in the areas of: electric vehicles that aime at the reduction of carbion dioxide emissions; the development and production of innovative compound materials for automotive manufacturing; and social projects such as the establishment of a training center in Abu Dhabi to educate young people for positions in the auto industry.
"We believe that our future cooperation will be beneficial for Aabar and create social and economic benefits for Abu Dhabi and the United Arab Emirates," said Al Qubaisi in his statement.
Photos by Daimler
1 - Daimler CEO Dietzer Zetsche says Aabar supports the German automakers strategy.
2 - Sales of luxury vehicles, like the Mercedes-Benz R-Class, have plummeted due to the global economic crisis.
Posted by Michelle Krebs at 5:31 AM under Analysis , Chrysler , Companies , Featured , Technology | Comments (0) | digg this | Seed Newsvine
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