Analysts View Traton, Navistar Deal as Win-Win
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Navistar International Corp. is on the verge of becoming a subsidiary of German truck maker Traton SE, a step analysts said is a positive development for both companies.
One industry analyst said the arrangement would help Navistar address the high cost of developing a range of emerging technologies for commercial vehicles. Another financial analyst said there were not a lot of other obvious buyers.
“The bottom line is, it was an interesting transaction. I think that Navistar is an attractive asset for Traton. It’s pretty much the only way for them to get meaningful exposure to the U.S. market, which is something they definitely wanted,” Stephen Volkmann, an analyst with Jefferies Financial Group Inc., told Transport Topics.
Traton, which already owns 16.8% of Navistar, agreed Oct. 16 to pay $44.50 for all outstanding shares, putting a value on the transaction of $3.7 billion.
“Navistar needed a long-term global solution to making and selling commercial vehicles,” John Blodgett, vice president of sales at MacKay & Co., told TT.
“I think it would be difficult to remain competitive as primarily a North American truck manufacturer and the volume that represents, and compete with global truck manufacturers and the volumes that they have to spread cost and have funding for R&D,” Blodgett said.
All global truck makers are pursuing zero-emission powertrains and autonomous trucks, as well as connected vehicle features.
Volkmann
Volkmann said it was possible, initially, that some niche truck products that aren’t in the U.S. would make their way here.
“But at the end of the day,” he said, “the point of this whole thing is to get more leverage and to get global distribution for a very broad and full product line.”
Traton — Volkswagen AG’s heavy-truck division — upped its offer to meet Navistar’s counter to its bid of $43 per share, which was an increase over Traton’s original $35-per-share offer in January.
Gründler
“We are pleased to have reached agreement in principle for a transaction after intensive negotiations with Navistar,” Traton CEO Matthias Gründler said in a release. “We are looking forward to completing our due diligence and obtaining the necessary approvals in respect of this exciting deal in order to welcome the new Traton family member.”
As for the proposed valuation, Blodgett said it reflected negotiations that have been on and off again this year.
“And with the exception of the activity [in mid-October], the pace to get to the final deal wasn’t completed in a hurry,” he said. “It seems both companies had plenty of time to determine if this deal made sense.”
Volkmann agreed. “Things are worth what people are willing to pay for them, in some sense.”
In 2016, Traton and Lisle, Ill.-based Navistar announced what they called “a far-reaching alliance” to focus on strategic technology and supply cooperation and a procurement joint venture — with Traton acquiring a 16.6% stake in Navistar, which it eventually increased.
Navistar’s involvement with Traton has focused on a range of economies and efficiencies — including in getting parts to dealers faster, systems support, electric vehicles and new diesel powertrains.
Clarke
“When you put our volumes together, it becomes a very sizable purchasing and procurement enterprise,” Navistar CEO Troy Clarke (now executive chairman) said during the 2018 IAA Commercial Vehicles show.
Navistar Chief Financial Officer Walter Borst said at the event Navistar and Traton were on track to realize the $500 million in cumulative synergies they said they would see over a five-year period. Borst also said he viewed Traton’s move into a joint venture with Hino as evidence that its deal with Navistar is working out.
RELATED: Economies of Scale Seen as a Benefit From Navistar-Traton Alliance
Hino and Traton created the procurement joint venture Hino & Traton Global Procurement.
Borst
“That’s a good sign — that the work we set up is working and can be replicated with the alliance overall,” Borst said at IAA. “The opportunities are even much more significant than we originally thought.”
Meanwhile, in its fiscal 2020 third-quarter earnings statement, Navistar reported a near 50% decline in truck sales, caused by the impact of COVID-19 on the economy, leading to sharp losses in the period.
Navistar’s net loss for the period ended July 31 was $37 million, or 37 cents per share, compared with a profit of $156 million, or $1.57, in the same period a year ago.
Revenue plunged 45% to $1.67 billion compared with $3.04 billion in the year-ago period.
Blodgett said that when the deal with Traton is completed, “since VW has no presence in this North American [commercial vehicle] market, you won’t have the same ‘how do we combine this company’ stresses. Not that there won’t be changes, but employees can feel better about the long-term future. It will be easier to recruit talent, a better story for customers and less sleepless nights for dealers.”
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