(Updates with analyst’s comment in fourth paragraph.)
Dec. 10 (Bloomberg) -- Volvo AB, the world’s second-largest truckmaker, agreed to sell its unprofitable North American construction-equipment rental business to Platinum Equity for 7.2 billion kronor ($1.1 billion) to focus on manufacturing.
The disposal of the Volvo Rents unit will result in a 1.5 billion-krona cost this quarter and is targeted for completion in the first three months of next year, the Gothenburg, Sweden- based company said today in a statement.
Chief Executive Officer Olof Persson is shifting Volvo’s focus to profitability from sales growth. The truckmaker laid out a strategy in 2011 to achieve operating margins at the top of the heavy-equipment industry, and it’s exiting businesses unrelated to making commercial vehicles and construction machinery. Volvo Rents posted a nine-month operating loss of 47 million kronor, the parent company said today.
“The sale value looks good for a loss-making business,” said David Arnold, a London-based industry specialist at Barclays Plc’s investment-banking unit, said in an e-mail. “The cash inflow should allow the company to maintain the dividend, albeit in a low-quality fashion.”
Volvo rose as much as 1.8 percent to 85.6 kronor as of 10:46 a.m. in Stockholm, the biggest intraday gain since Nov. 26. That pared the shares’ decline this year to 3.6 percent, valuing the manufacturer at 183 billion kronor.
The rental unit, which has about 2,100 employees, operates more than 130 outlets in North America and offers equipment for construction, commercial and industrial markets, according to its website. Nine-month sales amounted to 3.1 billion kronor. A decline in contract renewals at the rental business in the U.S. contributed to a 30 percent sales drop at Volvo’s construction- equipment division in the region, the truckmaker said in an earnings presentation for the period.
“We looked at different alternatives to grow Volvo Rents’ business and concluded that the best alternative is to sell the operation to another owner,” CEO Persson said in today’s statement. The unit “does not have a sufficiently strong connection with the group’s core operation to motivate continued ownership.”
Net debt at Volvo’s industrial operations will be reduced by about $1.1 billion by the sale, the Swedish company said. The manufacturer will continue to sell products to the rental business under the new owners. Customers, including companies in the oil and gas, metal-production, infrastructure, power and mining industries, aren’t expected to be affected by the transaction, Volvo said.
Platinum Equity, based n Beverly Hills, California, also owns the Maxim Crane rental and lifting service and Nesco, a provider of electrical-utility equipment. The U.S. private- equity firm will fund the Volvo Rents purchase through a debt sale, the Swedish truckmaker said.
“We appreciate Volvo’s trust in selling us the business and in our ability to execute a complex carve out,” Platinum Equity CEO Tom Gores said in a separate statement.
--Editors: Tom Lavell, Robert Valpuesta