VW buys 19.9 percent stake in Suzuki for $2.5 billion

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The world’s third largest auto giant known to us by the name of Volkswagen is all set to grow a bit bigger after the company reached a common understanding to establish a close long term strategic partnership. A framework has been signed today by representatives of both the companies today.  The firm had already publicized its intentions to be the world’s No.1 auto giant with its team of 10 brands which include Audi, Skoda, Seat, Porsche and many more. The firm’s step will however be a give and take relationship between the German and Japanese firms.  With this move, Suzuki will avail technological advances and Volkswagen will get better access and exposure into the small-car segment. According to a source with direct VW connections, the firm’s stake can easily rise to more than one-third in the future. The sources also added that the 20% stake would be worth about 250 billion yen ($2.80 billion) at current prices.

About six months ago, VW had revealed its interest in Suzuki due to its experience and dominance in the small-car segment. The move would also help VW to achieve its goal to be No.1 with the small-car segment being a key segment of competition in the present and future markets. On the other hand, Suzuki had announced that it would be very much happy to strike any sensible partnership. Before this announcement, Suzuki had lost its ties to General Motors Co. The Japanese firm initially took the GM support in the field of hybrid and next-generation technology. The firm, with the recent tie-up hopes to borrow Suzuki’s know-how for the development of s minicar platform for the Up! concept car.

Suzuki has well established its dominance in the Indian Market through “Maruti Suzuki”. On the other hand, it also dominates the unique 660cc minivehicles segment which is prevalent in its motherland, Japan. The firm is reported to have a market capitalization of $13.7 billion as compared to Volkswagen’s $45.7 billion. But however, Suzuki has been holding 20 percent of itself in treasury stock which it had bought back from GM during the years 2006 to 2008.

Volkswagen’s tie-up with Suzuki has not produced any kind of wave of surprise across the automotive industry. But however, the industry was left baffled after Suzuki Chief Executive Osamu Suzuki denied any talks of a tie-up just a month ago.

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