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Bain Capital Nears Deal for Stake in VW Diesel Engine Unit
German Carmaker Says Deal for Everllence Will Generate Proceeds of $8.4 Billion
Key Takeaways:
- Bain Capital agreed to buy a 51% stake in Volkswagen’s heavy diesel-engine unit Everllence for about $8.4 billion, with Volkswagen retaining 49%.
- The deal strengthens Volkswagen’s finances and restructuring efforts, analysts said, as it exits a non-core asset amid high costs, weak China demand and industry pressures.
- Volkswagen plans to use proceeds to streamline operations and boost profitability while continuing broader cost-cutting measures, including job reductions and capacity cuts.
Bain Capital emerged victorious in one of Europe’s most hotly contested private equity auctions with an agreement to buy a controlling stake in Volkswagen AG’s heavy diesel-engine unit.
The buyout firm will acquire a 51% stake in Everllence, according to a statement from Volkswagen confirming an earlier Bloomberg report. The German carmaker said the deal will generate proceeds of about 7.4 billion euros ($8.4 billion) and that it intends to keep a 49% stake in the medium term.
Bain outbid rivals CVC Capital Partners Plc and an EQT AB-led consortium, according to people familiar with the process, who asked not to be identified discussing confidential information. The EQT consortium included major Volkswagen shareholders: Qatar Investment Authority and Porsche Automobil Holding SE, a family entity distinct from Volkswagen’s sports-car unit Porsche AG.
The outcome hands Volkswagen CEO Oliver Blume a notable win in his push to simplify Europe’s biggest carmaker, which is securing a clean exit from a non-core industrial asset despite the group’s complex governance structure.
Volkswagen shares were up as much as 3% in Frankfurt trading on June 25, trimming their decline this year to about 25%.
Everllence is one of the world’s leading makers of two-stroke marine engines used in vessels responsible for roughly 90% of global trade. The other main player in the industry is Wartsila Oyj, whose biggest shareholder is Sweden’s Investor AB.
The transaction will “significantly strengthen” Volkswagen’s finances as its transformation moves forward, according to analysts at JPMorgan.
Everllence “is expected to continue its growth in the dynamic markets of global shipping, data centers and the energy sector thanks to the new ownership structure,” they wrote in a note.
Private equity firms are showing increased appetite for industrials assets as they seek havens from volatility in their long-favored software sector. Bankers have been working on debt financings of as much as 6.5 billion euros to back the Everllence deal, Bloomberg reported previously.
Volkswagen is selling Everllence as part of an effort to streamline its operations and boost profitability. Proceeds from the sale will give it a boost amid a deepening downturn in its most important market in China.
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Blume
Blume this month said the manufacturer’s decadeslong strategy in developing and making cars in Europe isn’t working anymore. High costs, U.S. tariffs, the transition to electric vehicles and growing competition from China’s BYD Co. are sapping profits needed to invest in fresh products.
The deterioration has left Volkswagen searching for more ways to shed costs, on top of an existing plan to slash around 50,000 jobs in Germany by the end of the decade and reduce carmaking capacity. The company’s issues are mirrored elsewhere, with BMW AG recently making a deeper-than-expected cut to its outlook for the year following weak sales in China, and Mercedes-Benz Group AG also seeking additional savings in order to stay competitive.
Volkswagen’s efforts to streamline its sprawling portfolio of industrial assets have faced challenges from the company’s byzantine ownership structure. While the controlling billionaire Porsche-Piech clan are in the driver’s seat, major decisions require support from labor leaders sitting on its supervisory board.
The German state of Lower Saxony also holds a 20% stake. Decision-making can be slow and cumbersome and internal power struggles often spill into public view.
That history makes the Everllence agreement a relatively smooth piece of execution for Volkswagen. The company has long faced investor pressure to simplify a portfolio that stretches well beyond passenger cars, but attempts to separate or monetize assets have often been slowed by governance hurdles, market conditions or competing power bases inside the group.
Most recently, Porsche, which listed in 2022, ran into trouble after missteps on its EV strategy and a sharp deterioration in demand from Chinese buyers. After four profit warnings last year, Blume ended his dual role as CEO of both the 911 maker and Volkswagen.
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The separation helped the Porsche-Piech family regain more direct influence over the famed sports-car maker. It also left parts of the clan carrying debt levels that make them reliant on dividends from Volkswagen.
Volkswagen’s 2019 listing of Traton SE, which combines Sweden’s Scania, Germany’s MAN and North American Navistar truck brands, also disappointed. VW had to delay the share sale for a time because of weak investor interest, while the small stake offered in the listing also weighed.
There has been repeated speculation over a potential separation of other assets such as Lamborghini, though Volkswagen has so far denied pursuing such plans.
Written by Eyk Henning, Swetha Gopinath and William Wilkes
