Volvo Considers Selling Penta Engine Unit

Friday, May 18, 2001
Volvo recently made it known to investment banks that all or part of its profitable Penta marine and industrial engine unit would be up for sale at the right price, Reuters reported. Analysts said Volvo probably would require a high offer for Penta, one of its smaller but more profitable units, and would sell only if it needed the cash to fund a tempting acquisition in its core business in trucks, buses and industrial equipment. "It comes as a surprise to me. They normally argue that it has a lot of synergies, not least with the truck area when it comes to engine knowledge," Danske Securites analyst Mikael Sens said. But Penta's strong recent financial performance could justify an expensive price tag, he noted, and that cash would be useful if Volvo had a large acquisition in the pipeline. "That would be the only good argument. The price could perhaps be favorable. If they plan to make another big acquisition in some other area, perhaps they could start to pile up some cash," Sens said. Volvo declined to comment. Volvo Penta makes engines for leisure boats, work boats, power generating equipment and other machines, including forklifts. Its products are sold in 120 countries. Penta had its best year ever in 2000, with sales jumping 14.5 percent to 6.6 billion Swedish crowns ($642.8 million) and operating profit of 484 million crowns, a margin of 7.3 percent. The unit contributed five percent of Volvo Group's sales in 2000, but almost eight percent of its operating income. - (Reuters)

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