Volkswagen Moves to Restructure
Volkswagen took a major step in its restructuring plans with the sale of its majority share in Everllence. (Pietro Zollin et al., Volkswagen Group). Volkswagen invested significantly in repositioning and strengthening Everllence before the sale, contributing to an increased evaluation. Id. The transaction illustrates how a large multinational corporation can use a private-equity investment to strategically restructure. (Stephen Wilmot et al., The Wall Street Journal). This article analyzes the structure of the transaction, why Volkswagen is restructuring, and what it means for Volkswagen’s future.
The particular structure of the transaction and bidding process are significant. Rather than making a complete exit, Volkswagen will retain a 49% stake and transfer the 51% controlling interest to the U.S. private equity firm Bain Capital (“Bain”). (Pietro Zollin et al., Volkswagen Group). The arrangement puts Bain in control of Everllence, while allowing Volkswagen to stay invested in the company’s future value. Id. Bain’s investment and expertise allow Volkswagen to refocus its resources to its core automotive business. (Stephen Wilmot et al., The Wall Street Journal). Since Volkswagen acquired Everllence in 2018, Everllence has grown into a leading provider of “propulsion, decarbonization and efficiency solutions for the maritime, energy and industrial sectors.” (Pietro Zollin et al., Volkswagen Group).
The bidding process is an interesting example of corporate governance and transaction execution. Volkswagen structured the sale to reduce leaks and maintain confidentiality due in part to EQT’s involvement with some of Volkswagen’s leading shareholders Porsche Automobil Holding and Qatar Investment Authority. (Aaron Kirchfeld et al., Financial Times). Volkswagen requested that bidders submit sealed bids and even had certain board members recuse themselves from the process. Id. Ultimately, Bain’s extensive experience in the industry and financial resources beat out the competition with a $8.4 billion bid. Id.
The transaction reflects Volkswagen’s broader effort to simplify its sprawling corporate structure and focus on core automotive business. (Pietro Zollino et al., Volkswagen Group). Volkswagen has spent the past ten years building it sprawling portfolio as it has tried to recover from the financial and reputational damage caused by the “dieselgate” scandal in 2015. (Jack Ewing, The New York Times). “Dieselgate” was the result of Volkswagen marketing environmentally friendly diesel engines that used illegal devices to conceal the true amount of emissions. Id. Additional pressures form Chinese automakers increasing their presence in Europe and the current geological climate had made it even more challenging for Volkswagen. (Neil Winton, Forbes).
Volkswagen is expected to continue evaluating non-core assets and bring in additional outside investors to reduce complexity and increase financial flexibility. (Aaron Kirchfeld et al., Financial Times). Advisers hope the success of the Everllence sale will encourage Volkswagen to consider recent pitches to sell other significant assets such as Ducati and Lamborghini. Id. The company’s current restructuring strategy, led by Chief Executive Officer Oliver Blume and Chief Financial Officer and Chief Operating Officer Dr. Arno Antlitz, focuses on improving profitability and efficiency while simplifying Volkswagen’s complex corporate structure. (Pietro Zollin et al., Volkswagen Group).
Ultimately, Volkswagen’s sale of its majority stake in Everllence demonstrates how corporate transactions can be used as tools for strategic restructuring. By simplifying its corporate structure, Volkswagen can invest more resources into keeping up with the rapidly changing automotive industry.