Volkswagen will pay around $16 per Navistar share, or the equivalent of $223 million, for the Navistar share. The production of heavy-duty trucks is due to fall this year by about a third.
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The deal remains contingent upon Hart-Scott-Rodino Antitrust filings.
German auto giant Volkswagentoday said it had bought a 16.6-percent stake in American truck maker Navistar, giving it a foothold in the USA market.
USA regulators last month announced new environmental standards created 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.
Volkswagen will buy 16.2 million shares of Navistar at $15.76 a share.
Navistar’s stock surged more than 40 percent in premarket trading. Navistar will receive $256M from the equity investment to be used for general corporate purposes.
The arrival of Volkswagen will coincide with the retirement for two long-term board members at Navistar, with 14-year servant James Keyes and 20-year veteran Michael Hammes to step down at the completion of the share issuance.
Navistar expects cumulative synergies for Navistar to ramp up to at least $500 million over the first five years. By the fifth year, the Lisle, Illinois-based company anticipates the alliance will generate annual savings of at least $200 million for its business.
“Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale”, commented Clarke.
“Cummins is a great partner for us and the Cummins engine in our product is an outstanding product”, said Troy Clarke, president and CEO of Navistar.
“Navistar has always made sense as an expansion target for Volkswagen, which has no presence in the North American commercial-vehicle market”, said Brian Sponheimer, a Gabelli & Co. analyst in Rye, New York.
The procurement joint venture will help both companies source parts and provide Navistar access to global sourcing opportunities and improved pricing.
Creating a global truck platform that can allow Volkswagen to share components across many different brands and models was a big driver of this week’s Navistar deal.
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 worldwide and IC Bus brands.
Renschler repeated the answer when he was asked whether Volkswagen’s truck and buses businesses could be spun off from the Wolfsburg, Germany-based parent company.
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Stephen Volkmann, analyst at Jefferies, said that by buying a smaller stake in Navistar, Volkswagen “perhaps wants to dip a toe in the water rather than get completely wet”, but he expects the German automaker to eventually buy the rest of the truck maker.
