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CITIGROUP (C)
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Volkswagen considers options for transmissions maker Renk: sources

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07/17/2017 | 01:03pm CEST

Volkswagen (>> Volkswagen) is considering options for majority-owned transmissions maker Renk (>> Renk AG), as the German carmaker streamlines operations to help fund an overhaul following its emissions scandal, people close to the matter said.

Volkswagen (>> Volkswagen) is considering options for majority-owned transmissions maker Renk (>> Renk AG), as the German carmaker streamlines operations to help fund an overhaul following its emissions scandal, people close to the matter said.

Volkswagen (VW) is working with Citi (>> Citigroup) to decide on the future of Renk, which may result in a sale of the maker of transmissions and bearings used in ships to wind turbines, the sources said.

If a formal decision to sell Renk is taken, an auction could be kicked off as early as this autumn and the company could be valued at 600-800 million euros ($687-$916 million), they added.

VW and Citi declined to comment.

VW is reining in spending, including cutting thousands of jobs at its core passenger-car brand, to help pay for a multibillion-euro shift to embrace electric cars and new mobility services.

It has already launched a sale of motorcycle brand Ducati.

Renk is 76 percent owned by VW unit MAN (>> MAN) and had 390 million euros in equity and 214 million in cash, according to its 2016 annual report.

Last year, Renk posted profit before taxes of 65 million euros and earnings before interest, tax, depreciation and amortization of about 80 million euros on sales of 496 million.

Bidders are expected to value the business at about 8-9 times its expected core earnings, a slight discount to peers such as Timken (>> Timken Co), Rexnord (>> Rexnord Corp) and Allison Transmission (>> Allison Transmission Holdings Inc), which trade at 9-10 times. "Renk may be worth 10 times. But a buyer will need to offer minority shareholders a small premium. That could mean that Volkswagen will get slightly less for its stake," one of the people said.

Renk is expected to attract interest from private equity groups such as KKR, CVC, Cinven, Carlyle and Advent, the sources said.

Separately, some Renk peers are expected to look at the asset. However, Renk's exposure to the defense industry will make it hard for non-NATO buyers to acquire Renk, the sources said.

"Japanese groups such as Sumitomo Heavy (>> Sumitomo Heavy Industries Ltd), Kawasaki (>> Kawasaki & Co Ltd) or Mitsubishi (>> Mitsubishi Heavy Industries Ltd) may take a look. But U.S. groups like Rexnord or Timken who would mainly be interested in the non-defense related products are unlikely buyers," another person close to the matter said.

Renk, founded in 1873, currently employs 2,200 staff. VW has said repeatedly in the past that it wanted to keep the business.

(Additional reporting by Jan Schwartz; Editing by Mark Potter)

By Arno Schuetze and Edward Taylor

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Financials ($)
Sales 2017 71 652 M
EBIT 2017 28 208 M
Net income 2017 14 424 M
Debt 2017 -
Yield 2017 1,32%
P/E ratio 2017 13,71
P/E ratio 2018 12,32
Capi. / Sales 2017 2,77x
Capi. / Sales 2018 2,68x
Capitalization 199 B
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Mean consensus OUTPERFORM
Number of Analysts 30
Average target price 75,3 $
Spread / Average Target 3,4%
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NameTitle
Mike Louis Corbat Chief Executive Officer & Director
James Anthony Forese President & CEO-Institutional Clients Group
Michael E. O'Neill Chairman
Don Callahan Chief Operations & Technology Officer
John C. Gerspach CFO & Principal Accounting Officer
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