An arbitral court in London confirmed the termination of the partnership between Volkswagen AGVLKAY and Japanese automaker Suzuki Motor Corp. The automakers had come together in 2009 to develop innovative and eco-friendly budget cars and expand in the emerging automotive markets. This got the automakers working on hybrid and electric vehicle technology.
In 2009, Volkswagen had purchased a 19.9% stake in Suzuki while the latter purchased around 1.5% of the ordinary shares in the former. The partnership hit a wrong note when Volkswagen allegedly violated the agreement by refusing to share its hybrid technology. Meanwhile, Volkswagen accused Suzuki of violating the agreement by purchasing diesel engines from Fiat.
The partnership did not work for the companies and Suzuki took the initiative to call off the alliance. It went ahead to provide a valid notice of termination. However, the London court found that Volkswagen had fulfilled the contractual obligations under the cooperation agreement. However, Suzuki was found to violate its contractual obligations to Volkswagen.
The court confirmed that Suzuki had violated the agreement by breaking off an ongoing cooperation project at the end of 2010 or in the beginning of 2011 and failing to give Volkswagen last-call rights for the delivery of diesel engines. Hence, Volkswagen is eligible to claim damages.
As per the terms of the partnership termination, Volkswagen will dispose of its 19.9% stake in Suzuki which was worth around $3.8 billion at Friday's closing. However, it is expected that this termination will have a positive effect on Volkswagen's earnings and liquidity.
Volkswagen currently carries a Zacks Rank #4 (Sell).
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