Date registered: Feb 2004
Vehicle: 1997 S500
Location: Las Vegas, NV
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More Good News -- DaimlerChrysler had a change of heart
BERLIN (Dow Jones)--Automaker DaimlerChrysler AG (DCX) Wednesday said it plans to sell its 10.5% stake Hyundai Motor Co. (005380.SE) and pull out of a planned truck joint venture with its Korean partner in a further unwinding of its Asian strategy.
The move comes just weeks after the German automaker's controversial decision to cease funding for its ailing Japanese partner Mitsubishi Motors Corp. (7211.TO), in which it holds a 37% stake.
Establishing a stronghold in Asia was a key part of DaimlerChrysler Chief Executive Juergen Schrempp's much-criticized globalization strategy. But after the retreat from Mitsubishi Motors and Hyundai, the company has largely abandoned this effort.
In addition to selling its stake in Hyundai Motor, DaimlerChrysler is also pulling out of a 50/50 joint venture to produce truck engines and ending talks
on a partnership to jointly manufacture commercial vehicles. DaimlerChrysler agreed in June 2001 to buy 50% of Hyundai Motor's truck operations for about EUR400 million. The deal was meant to be finalized a year ago, but was delayed due to prolonged labor negotiations with Hyundai's commercial vehicle workers. And with relations with Hyundai deteriorating, DaimlerChrysler had a change of heart.
DaimlerChrysler's cooperation with Hyundai will now be confined to specific projects. The two companies, for instance, will continue to cooperate on the development of a four-cylinder engine for use in Chrysler, Hyundai, and Mitsubishi cars as well as on procurement. DaimlerChrysler will also continue
to supply engines for Hyundai buses and distribute Hyundai's Atos and Verna, also known as Accent, cars in Mexico.
The pullback from Hyundai "underlines the problems DaimlerChrysler faces with its Asian strategy," Deutsche Bank's Christian Breitsprecher said in a
research note. Deutsche Bank has a hold recommendation and target price of EUR37 on DaimlerChrysler.
DaimlerChrysler had prepared for the sale of its 22.9 million Hyundai shares last week, when it converted the shares to global depository receipts, making it easier to sell the shares to international investors.
The disposal of the Hyundai Motor stake should provide DaimlerChrysler with a tidy gain. The German automaker paid about EUR484 million for the stake,
which is currently valued on the stock market at roughly EUR840 million. The timing of the sale of the stake is open and may not happen this year, a
DaimlerChrysler spokesman said. The one thing that's clear is that DaimlerChrysler won't be seeking to sell it to a single investor, the spokesman added.
The widely-expected news had little impact on the stock market. At 1153 GMT, DaimlerChrysler shares were up 1.1% at EUR36.24 in line with other carmakers. The importance of the Hyundai truck joint venture for DaimlerChrysler had declined after the German company acquired a majority stake in the larger Mitsubishi Fuso Truck and Bus Corp. in March.
"Among the challenges facing (DaimlerChrysler), this is a small issue," said Albrecht Denninghoff, an automotive analyst at HVB Group. He has a neutral rating and a target price of EUR40 on the stock. More pressing concerns for DaimlerChrysler are ensuring Chrysler can reliably generate profits and stemming the slide in quality at cash-cow Mercedes-Benz.
Evidence of strained relations between DaimlerChrysler and Hyundai surfaced in October last year, when Hyundai publicly objected to DaimlerChrysler's agreement to build Mercedes-Benz cars in China with partner Beijing Automotive Industry Holding Co. (BJA.YY). Hyundai claimed that the Mercedes' cooperation with Beijing Automotive violated an exclusivity clause in its own agreement with the Chinese carmaker and demanded that DaimlerChrysler withdraw from the partnership with Beijing Automotive.
DaimlerChrysler and Hyundai tried to put a positive face on the change in relations, which will now focus on individual projects. "The realignment of the strategic alliance is an important step forward to better position both companies to capitalize on opportunities in the changed market environment," said Hyundai's Vice Chairman Kim Dong-Jin. The move is also a reflection of Hyundai's increasing confidence. Korea's leading carmaker has made strides especially in Europe, boosting its confidence in its ability to go it alone.
Hyundai, for instance, posted an 11% rise in first quarter net profit to KRW463 billion ($397 million). DaimlerChrysler's first-quarter net profit, meanwhile, declined 33% to EUR393 million.
-By Chris Reiter and Edward Taylor, Dow Jones Newswires; +49 69 29725500; email@example.com
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