Hope Rises for Panhard-Renault Merger
Talks for Renault Trucks Defense (RTD) to acquire Panhard are at an advanced stage, offering the prospect of a long-awaited consolidation in the French armored vehicle sector, the chief executives of the two companies said.
“We’re at the negotiating stage,” said Christian Mons, Panhard General Defense CEO. “We’re advancing, we’re progressing.”
Panhard specializes in making light military vehicles, including the Sagaie and AMX10 light tanks.
“The negotiations are complicated,” Mons said. “Volvo [owner of Renault Trucks] is an enormous and complicated company. Progress in the negotiations is complex.”
Many industry executives have said a merger in the vehicle sector is vital for French competitiveness.
News of the negotiations between Panhard and Renault Trucks Defense emerged in December, although at that time RTD declined to identify the merger partner, other than to say it was a European company.
“We’re on the last leg,” said Gérard Amiel, chief executive of RTD. “We don’t know if there’s a follow-on or a ravine.”
An acquisition of Panhard is a key step in RTD’s plan to reach 700 million euros ($876.8 million) in sales by 2015, compared with 250 million euros in 2011.
“It’s a real negotiation. All the conditions are in place for it to happen,” Amiel said. “These are the final negotiations of a seller who wants the best price for his product and a buyer who wants to buy as cheaply as possible. The road was longer than we |expected.”
For Mons, there is no set timetable and RTD’s parent company, Volvo, will have to approve any agreement. The timing of the Volvo board meetings will decide the timing of any deal announcement.
“I can’t say it will be announced at a |certain date. It’s not under my control,” Mons said. “Even when we agree a deal at our level, the Volvo board of directors needs to approve it.”
A detailed due diligence study of the Panhard business has been done.
The negotiations include the price of the company, guarantees, the sites, building leases and continuity of management. The sellers do not want the company to be dismantled.
“Panhard is a company with 120 years of history, indisputably a jewel in French industry. There’s no question it should disappear,” Mons said. “There’s no urgency. I see it as part of the restructuring of the sector.”
The companies are important actors but not fundamental to the industry, which is worth a total 4 billion euros, he said.
“It’s not a determining change, but a step in the right direction,” Mons said. “We’re in the last third of the journey.
“In any negotiation, the protagonists can leave the room empty-handed,” he said. “Failure is an option. That’s how fragile it is.”
RTD teamed with electronics company Thales to bid when the PSA Peugeot Citroen auto group put Panhard up for sale in 2005. The Auverland company, owned 76 percent by the Cohen family, won the tender and adopted the Panhard name.
RTD tried again to acquire Panhard in 2009, but the talks failed. This is the third attempt, Mons said.
“If the negotiations fail, it will be bad news for the sector because it means French companies cannot organize themselves, and Panhard will one day fall into the hands of a foreign buyer. It’s logical,” he said.
For RTD, the negotiations are taking place at a tricky time, Amiel said.
“The purchase is not an easy one, given the difficult defense markets in 2011 and 2012,” he said.
Panhard has not won many export |contracts in recent years, he said. There are lots of deals under discussion, but nothing large has been signed. The French market, on which all sides depend, is in a state of suspended animation as the new administration decides on the budget, Amiel said.
The talks have been complicated by corporate reorganization at Volvo, with a new chairman appointed in September and a reworking of the organization chart.
Volvo is a thorough company and conducted a highly detailed due diligence examination of Panhard’s activities.
“We certainly went through with a fine-toothed comb,” Amiel said. “We’re sure there aren’t any bad surprises. We looked at everything.”
A Merger for Critical Mass
A merger of the two companies is needed to create a solid platform maker, an industry executive said.
“It’s imperative,” the executive said. “It’ll be catastrophic if it doesn’t go through. It would leave the French military armored vehicle industry very vulnerable.”
There is little overlap of activities between the two companies, simplifying a possible merger, the executive said.
Panhard specializes in light military vehicles, while RTD makes heavier units. There is a slight overlap in the 8-to-11-ton class with the RTD Sherpa and Panhard PVLP XL.
Panhard has two sites, RTD five, with the latter scattered around France.
The Panhard factories are manufacturing sites with steel plates being welded, but they do not build drivelines and gearboxes. RTD gets its drivelines, gearboxes and other “mobility” parts from Volvo.
Together, the two companies would have bigger purchasing power and larger commercial networks.
France needs to consolidate armored vehicle manufacturing to invest in development of new vehicles. For that, critical mass is needed, the executive said.
The companies need to size up to negotiate with German and Italian firms in future consolidation moves. Germany has Rheinmetall and KraussMaffei-Wegmann, while Italy has the commercial truck maker Iveco.
“The big problem is that there are many companies and too few programs” in Europe, the executive said.
Nexter also needs wins, as the domestic books are empty after the last véhicule blindé combat d’infantrie fighting vehicle and Caesar canon is delivered to the French Army.
Other consolidation questions include whether Thales will buy the systems business of the Nexter group to merge with its land activities, the executive said.
In an announced deal, Thales is swapping its TDA mortar systems subsidiary for a stake in land systems specialist Nexter.
Thales Chief Executive Luc Vigneron said March 7 that a “significant stake” in Nexter was needed to ensure confidence between the two companies, Reuters reported. Thales and Nexter are going through due diligence studies, Vigneron said May 4.
The companies have not yet reached a stage of setting a value on the respective businesses, he said. A deal was not expected to be concluded before the Eurosatory show.
Thales could get between 10 and 20 percent of Nexter in exchange for TDA Armaments and its Belgian FZ subsidiary, former Defense Minister Gérard Longuet said in January.
RTD had 250 million euros in sales in 2011, and Panhard 83 million euros. Nexter had 851 million euros in 2011 sales.