1. Volkswagen takes $256 million Navistar stake in trucks push

Volkswagen takes $256 million Navistar stake in trucks push

Volkswagen has agreed a wide-ranging technology and purchasing deal with US truck maker Navistar in exchange for a 16.6 percent stake, an alliance forged in part by the need to meet stringent emissions regulations.

By: | Frankfurt | Published: September 6, 2016 6:41 PM
Wolfsburg-based Volkswagen (VW) will pay .76 a share for 16.2 million new Navistar shares, a 12 percent premium to Navistar's closing price on September 2, the two groups said on Tuesday. (Reuters) Wolfsburg-based Volkswagen (VW) will pay .76 a share for 16.2 million new Navistar shares, a 12 percent premium to Navistar’s closing price on September 2, the two groups said on Tuesday. (Reuters)

Volkswagen has agreed a wide-ranging technology and purchasing deal with US truck maker Navistar in exchange for a 16.6 percent stake, an alliance forged in part by the need to meet stringent emissions regulations.

The deal should help both sides cut costs, give Volkswagen’s trucks business a long-desired foothold in North America, and provide a source of new engines for Navistar, which has been looking for a partner since 2010 when it failed to get approval from US regulators for its heavy-duty diesel truck engine.

With few potential partners to choose from, Navistar is tying is fortunes to a company which, through its acquisition of MAN and Sweden’s Scania, has amassed global truck engine expertise, but whose carmaking arm is grappling with a scandal over falsified diesel emissions tests.

Wolfsburg-based Volkswagen (VW) will pay $15.76 a share for 16.2 million new Navistar shares, a 12 percent premium to Navistar’s closing price on September 2, the two groups said on Tuesday.

Volkswagen Truck & Bus will hold Navistar shares for a minimum of three years and top-level executives from both parties will align product development and procurement processes, the companies said.

The pact was welcomed by analysts who said it could also bolster VW’s chances of spinning off its trucks arm.

“A more global company with exposure to the profitable North American market will make for a better story should VW look to IPO its trucks business in the future,” Arndt Ellinghorst, analyst at Evercore ISI said in a note.

VW shares were almost 1 percent higher at 126.15 euros in afternoon trade, outpacing Germany’s blue-chip DAX index which was up 0.36 percent.

The alliance, first reported by Reuters on Monday, will see the creation of a joint venture for procurement, which Navistar said would help it reach synergies of at least $500 million over the first five years.

Pooling VW and Navistar’s procurement will create economies of scale from Volkswagen Truck & Bus’s three major truck brands – Scania, MAN and Volkswagen Caminhões e Ônibus – in addition to Navistar’s own International and IC Bus brands.

In a statement, Troy Clarke, President and CEO, Navistar, said: “Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies.”

By year five, it expects the alliance to generate annual synergies of at least $200 million for Navistar, which could rise further as the companies continue to introduce technologies from the collaboration.

Navistar said synergies will come from procurement and technology collaboration, rather than job cuts.

US regulators last month announced new environmental standards designed to cut greenhouse gas emissions from medium and heavy-duty trucks by up to 25 percent by 2027, adding pressure on Lisle, Illinois-based Navistar to seek a technology partner.

The financial burden of developing next generation engines to meet new emissions standards is forcing several vehicle makers to pursue partnerships and technology deals.

In May, Nissan took a 34 percent stake in Mitsubishi, while in 2013, Aston Martin agreed to sell a 5 percent stake to Mercedes-Benz parent Daimler in exchange for delivering next generation engines and electronics that meet the latest emissions rules.

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