Navistar stock jumps 19% in 5 days on VW acquisition talk

 A Navistar 9900i. ( Photo: Navistar International )

A Navistar 9900i. (Photo: Navistar International)

VW is still rolling out its post-Müller strategy

Navistar International, a large manufacturer of commercial trucks, buses, and diesel engines, saw its stock price soar from $33.82 to over $40 in the past five days, a rise of about 19%, on acquisition talk by Volkswagen. 

“[Acquiring a majority stake in Navistar] would make sense at some point,” said Matthias Gruendler, the finance chief of VW Truck and Bus, on Monday. VW’s heavy vehicles division presently owns just under 17% of Navistar, and is looking to alter its structure as the division prepares for an IPO or debt sale in about a year. Volkwagen bought that stake in Navistar in 2016 to expand into the North American commercial vehicles market, where Daimler already makes Freightliner trucks and Volvo owns the Mack brand.

U.S. law would require VW to issue a formal takeover bid for Navistar if the German manufacturer raises its stake in the U.S. company above 17 percent, Gruendler pointed out. 

Heavy vehicles division CEO Andreas Renschler said that “We need a lot of investment and funding… We are lifting the [commercial vehicles] group to the next level.” As part of that push, the Volkswagen Truck and Bus business is cutting costs across its MAN, Scania and Brazilian VW commercial-vehicle operations through joint procurement and development of parts, the company said Monday in a statement. 

It was just last week that VW’s board ousted CEO Matthias Müller, which was widely seen as a changing of the guard that would distance the automaker from its continued diesel emissions scandals—in 2015, Volkswagen admitted it had used special devices to falsify US emissions test results, and earlier this year, news broke that the company was involved in tests of the effects of diesel fumes on humans and monkeys. Herbert Diess, brand chief for VW, who previously worked at BMW, was tapped to replace Müller.

Last week Diess said he would accelerate the pace of change at VW by cutting costs, boosting productivity, and investing aggressively in electric cars and new auto technology. Diess was nicknamed “Kostenkiller” or ‘cost killer’ while at BMW for his ability to cut spending. 

In 2016, Diess warned VW employees that “in its current form, our company is not sustainable.”

“Volkswagen used to trade at a big, big discount, and I think Herbert Diess is really the CEO who will drive efficiency at Volkswagen, he will take the company to the next level,” said Arndt Ellinghorst, managing director at Evercore ISI, on CNBC's “Squawk Box Europe” last Friday.

On Monday morning, Stifel issued a $50 price target for Navistar. Stifel transportation equities analyst Michael Baudendistel wrote, “In order to like Navistar’s shares, we believe one has to believe in two things: (1) an improving heavy- and medium-duty truck market and (2) the company’s positioning and execution within that market. The company’s promising new products and recent performance have gradually convinced us of the latter, while a solid macro backdrop, improving freight fundamentals, and strong truck orders have convinced us of the former. While the shares clearly reflect an expectation that the outlook for Navistar has improved significantly, we see several additional opportunities which could drive incremental confidence in the market and lead to further growth. We think shares of NAV should continue to rise over the next year and, so long as the broader market holds up, could be significantly higher over the next few (we see the multi- year potential for $75+).”

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