Dan Loeb and the Suzuki/VW Arbitration

The Suzuki logo.

Image: 360b/Shutterstock

Suzuki announced last Sunday that it will buy back its shares of VW after an international arbitration court settled a dispute between the two companies. Hedge fund bigwig Dan Loeb urged Suzuki to cancel the shares it takes back, arguing that leaving them active could hurt current shareholders. With his Third Point a stakeholder in Suzuki, will Loeb step in to further advise on the aftermath of the dispute? And, perhaps more importantly, will Suzuki listen?

The trouble began not long after Suzuki and VW formed a partnership in December of 2009. They intended to work together on producing more hybrid and electric cars, as well as expanding other emerging economies. However, by January of 2010, VW was refusing to sell back the Suzuki shares it had acquired for $1.9 billion after Suzuki accused VW of withholding hybrid technology it had promised to share. VW, for its part, objected to Suzuki’s purchase of diesel engines from Fiat, which VW said went against the VW/Suzuki agreement.

Unable to find common ground, Suzuki filed for international arbitration in November of 2011. The London Court of International Arbitration ruled that Suzuki should get its shares back from VW, and the partnership should officially be dissolved. It also partially upheld VW’s claims regarding Suzuki’s breach of contract.

Both companies welcome the clarity offered by the ruling. “It used to feel as if a small bone were stuck in my throat,” Suzuki Chairman and Chief Executive Osamu Suzuki said. “I feel so refreshed now.” He foresaw no particular impact on the company’s full year earnings.

VW said it will be consulting an investment bank regarding the potential impact the decision will have on its own earnings and what steps to take next.

And where does Dan Loeb stand in all this? For one thing, his announcement that Third Point holds shares in Suzuki sent Suzuki stock soaring. Loeb was not specific about how he would intervene in the situation, if at all, though he offered to meet with management at Suzuki to discuss other “shareholder-friendly steps” that could be taken. “At this valuation, we’re happy to continue holding,” he said.

For now, Suzuki will be buying back its shares at a “reasonable” price, the specifics of which have not been announced. And they are unlikely to be entering into any more partnerships anytime soon.

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