The London Court of International Arbitration has asked Volkswagen AG to sell its nearly 20% stake in Suzuki Motor Corp, allowing the Japanese automaker to end its partnership with the German behemoth
31 Aug 2015 | 3243 Views | By Shourya Harwani
In what can be seen as a major respite for Suzuki Motor Corp, the London Court of International Arbitration has asked Volkswagen AG to sell its nearly 20% stake in the company, allowing the Japanese automaker to end its partnership with the German behemoth after a four-year struggle.
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In what can be seen as a major respite for Suzuki Motor Corp, the London Court of International Arbitration has asked Volkswagen AG to sell its nearly 20% stake in the company, allowing the Japanese automaker to end its partnership with the German behemoth after a four-year struggle.
On December 9, 2009, the two companies had signed a framework agreement for a global partnership in 2009, under which Volkswagen acquired a 19.9% stake in the Japanese automaker for nearly $1.9 billion. Under this agreement, VW and Suzuki were to work on achieving synergies in emerging markets as well as in the development and manufacturing of innovative and environmentally friendly compact cars.
However, Suzuki filed for termination of the partnership just two years after in 2011 as relations between the two companies soured after Volkswagen alleged that Suzuki breached the alliance agreement by buying diesel engines from Fiat; Suzuki denied that this was against the terms.
Suzuki made certain requests to the Arbitration Tribunal, including asking the Tribunal to make a declaration that the framework agreement was validly terminated and order Volkswagen to divest its shares in Suzuki to Suzuki or a third party designated by Suzuki pursuant to that termination.
Volkswagen's counterclaims of Suzuki’s breach of the agreement were partially upheld as well and the Tribunal indicated that the amount of damages, if any, would be addressed in a further stage of the arbitration proceedings.
"We welcome the clarity created by this ruling. The tribunal rejected Suzuki's claims of breach and found that Volkswagen met its contractual obligations under the cooperation agreement. Nevertheless, the arbitrators found that termination of the cooperation agreement by Suzuki on reasonable notice was valid, and that Volkswagen must dispose of the shares purchased. This decision is based on the principle that a contract may be terminated upon reasonable notice. Volkswagen expects a positive effect on the Company's earnings and liquidity through the sale of the Suzuki shares," the Volkswagen Group said on Sunday.
“Suzuki intends to acquire the shares in the company from VW through the ToSTNeT-3 system. Suzuki will disclose details regarding the acquisition of these shares as soon as they are determined. As a result of VW disposing of its shares in Suzuki, there will be a change in our largest shareholder, which is also a major shareholder. At this stage, Suzuki does not foresee any need to amend its forecast of consolidated results for the fiscal year ending March 31, 2016, however, if any matters that need to be disclosed occur, such matter will be promptly disclosed,” said the Japanese carmaker on the decision.