VW's truck chief says a complete takeover of Navistar is one of the "open" options.
Volkswagen’s unexpected, $256 million investment in Navistar International Corp. has sent shares of the struggling U.S. truck maker surging – especially after VW’s truck chief suggested a full takeover could be in the works.
Under the new agreement, Volkswagen Truck & Bus will invest $256 million in Navistar, and it will maintain that position for a minimum of three years. At $15.76 a share, that means VW will now hold a 16.6% stake in the Illinois-based company. It also will get two seats on the Navistar board of directors.
But VW Trucks boss Andreas Renschler said the deal may be just a first step. During a call with media and analysts to discuss the Navistar investment, Renschler said that, “On our way to becoming a global champion, all options are open.”
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The deal is significant for both companies. For VW, it marks the first big investment since the German manufacturer began working out settlements to its diesel emissions scandal – a situation that many observers feared might be costly enough to actually force Volkswagen to divest parts of its vast, global empire.
A new engine line developed for MAN and Scania will now be shared with Navistar.
Navistar, meanwhile, has been struggling in a crowded truck market and analysts have warned that faced a tough future as emissions and fuel economy regulations were tightening in the U.S. and other global markets.
On the positive side, global emissions standards are starting to harmonize, especially between Europe and the U.S., noted Renschler, and “If emissions regulations are coming closer together, you can address this kind of technology question with the same concept, transmission and after-treatment system.”
That could translate into improved economies of scale as VW shares technology now used by its MAN and Scania truck brands with Navistar. The deal calls for the German maker’s next-generation diesel engine to be adapted for use in Navistar’s U.S. truck lines.
Navistar last year sold 84,000 vehicles, compared to 179,000 trucks and buses at Scania and MAN.
VW completed the takeover of Scania in 2014.
Under the alliance, VW and Navistar will create a new joint venture to handle procurement, a move the U.S. manufacturer estimated will save at least $500 million over the next five years.
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The deal has generated positive feedback from analysts and shareholders.
“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,” wrote Evercore ISI analyst Arndt Ellinghorst, in a note to investors.
The $15.76 share price agreed to in the deal came as a 12% premium over Navistar’s closing on September 2nd, before the U.S. Labor Day holiday, but investors apparently see an even bigger upside. Navistar closed at $19.76 a share on Tuesday, a roughly 40% jump.
Just where VW might go with its new stake in Navistar is unclear. The German maker clearly sees opportunities to grow its position in the global trucking business at a time when over-the-road freight hauling is expected to see significant growth. But VW is apparently keeping other options, “open,” Renschler said during his telephone conference, including the possibility it might eventually spin off the truck operations.
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