Lisle, Illinois – Volkswagen’s commercial vehicle unit is taking a 16.6% stake in Navistar for $256 million, infusing much-needed cash into Navistar, giving Navistar access to VW technologies, and giving VW more access into the U.S. commercial market.
The agreements expected to be entered into in connection with the alliance will enable Navistar to offer customers expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus’s products and components, while better optimizing its product development spend.
The cash infusion should shore up Navistar’s balance sheet. The company lost $29 million through the first half of 2016, and improvement from the $106 million lost during the first half of 2015. Despite that financial improvement, the company has warned that falling commercial truck sales would hurt future performance and had trimmed its sales and earnings estimates for the rest of 2016.
The VW alliance will create massive global purchasing power pooling purchases for Navistar’s International, IC Bus, and Navistar Defense brands with VW’s Scania, Man, and Volkswagen truck and bus brands. VW’s brands are strongest in Europe and Asia, while Navistar’s sales come primarily from North America. Both companies have a strong presence throughout South America.
Navistar expects significant synergies from both the strategic technology collaboration and the procurement joint venture. The company expects the alliance to be accretive beginning in the first year, and for cumulative synergies for Navistar to ramp up to at least $500 million throughout the first five years. By year five, it expects the alliance will generate annual synergies of at least $200 million for Navistar. This annual run rate is expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.
Navistar President and CEO Troy Clarke says, “Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale. 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 and enabling Navistar to deliver enhanced uptime. Volkswagen Truck & Bus’s equity investment will strengthen our liquidity position and expand our financial flexibility, while aligning us with a valuable strategic partner.”
Volkswagen Truck & Bus CEO and member of the Board of Management of Volkswagen AG responsible for commercial vehicles Andreas Renschler adss, “Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context. We are now taking the next step on our way to becoming a Global Champion in the commercial vehicles industry. The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides.”
Walter Borst, executive vice president and CFO of Navistar, says, “The two companies can optimize the capital and engineering expenditures associated with next-generation truck and bus engine development, while providing both Navistar and Volkswagen Truck & Bus with opportunities for substantial procurement savings. “
As part of the alliance, Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6% of post-transaction undiluted common stock (or 19.9% of pre-transaction outstanding common stock). It will pay $15.76 per share or a 25% premium over Navistar’s 90-day volume weighted average price as of August 31, 2016, or 12% over Navistar’s closing price on September 2, 2016. Navistar will receive $256 million from the equity investment to be used for general corporate purposes.
Volkswagen Truck & Bus has agreed to hold these shares for a minimum of three years. Reflective of its shareholding post-transaction, Volkswagen Truck & Bus will have the right to appoint two directors to Navistar’s board of directors.
The procurement joint venture will help source parts for both companies, providing Navistar and Volkswagen Truck & Bus with greater scale and competitiveness. It will also provide additional opportunities for Navistar suppliers to gain access to potential global sourcing opportunities, and create improved pricing for end-customers.
The strategic technology and supply partnership will focus on powertrain technology solutions, as well as explore collaboration in all aspects of commercial vehicle development, including advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components. This enhanced collaboration will enable the alliance to share the overall costs associated with future vehicle development.
Navistar products will benefit from Volkswagen Truck & Bus components and technology through licensing and supply agreements entered into pursuant to the framework agreement for strategic technology and supply collaboration, which longer term will generate increased parts sales.
The closing of the share purchase agreement implementing the strategic alliance is subject to certain regulatory approvals, the finalization of the agreements governing the procurement joint venture and the first contract under the technology and supply framework agreement, and other customary closing conditions.
Source: Navistar