Volkswagen AG’s TRATON Group tentatively agreed Friday to pay $44.50 a share, or about $3.7 billion, for the 83% of Navistar International Corp. (NYSE: NAV) it does not already own.
“We are pleased to have reached agreement in principle for a transaction after intensive negotiations with Navistar,” TRATON CEO said Matthias Gründler said. “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,”
Navistar, the maker of International trucks and IC buses, countered TRATON’s “best and final” offer of $43 a share, saying it would do a deal for $44.50.
Navistar had the backing of its two largest shareholders on the higher bid. Billionaire Carl Icahn and financier Mark Rachesky and TRATON each own about 17% of Navistar’s shares.
The deal came together Thursday in a call with Gründler and Navistar Executive Chairman Troy Clarke and Chief Financial Officer Walter Borst. Clarke took the $44.50 price to the Navistar board for approval.
A Navistar spokeswoman told FreightWaves the deal needs “the execution of a definitive written agreement approved by both boards.”
Gründler said in a letter to Clarke that “we intend to work with Navistar towards prompt finalization of the transaction.”
Getting a deal done
Rumors of TRATON bidding for Navistar began almost immediately after the former Volkswagen Truck & Bus Group purchased 16.6% of Navistar for $256 million in September 2016. Navistar disallows any shareholder from owning more than 17% of the company short of purchasing all outstanding shares.
VW spun off the holding company of Sweden’s Scania and Germany’s MAN truck brands in an initial public offering of TRATON in 2019. Former TRATON CEO Andreas Renschler downplayed a full acquisition of Navistar in a media report in July 2019.
But four months later, Renschler and Clarke appeared on stage together at Navistar’s display at the North America Commercial Vehicle (NACV) show in Atlanta.
TRATON offered $35 a share, or $2.9 billion for the 83% of Navistar shares it did not own on Jan. 30. The cyclical downturn in trucking compounded by the coronavirus pandemic delayed serious talks until September. TRATON increased the bid to $43 on Sept. 10. That prompted Navistar to open its books to TRATON. On Wednesday, TRATON called $43 a share its “best and final” offer.
Getting Icahn and Rachesky, who sit on Navistar’s board, to support the latest deal required Clarke’s persuasion. Clarke retired as Navistar CEO, president and board chairman in April. He took on the newly created title of executive chairman specifically to get a TRATON deal done.
Icahn was publicly silent following TRATON’s unsolicited bid in January. But Rachewsky reportedly agitated for a higher price.
Why it matters
For Navistar, the smallest of the major truck makers in North America, a deal would make it part of a global giant, capable of financially keeping up with the vast technological changes under way in trucking.
For TRATON, whose goal under Renschler was to become a “global champion” a presence in the U.S. to compete against rivals Daimler Trucks and Volvo Group was essential.
“You cannot be a global champion if you have no U.S. presence,” Stephen Volkmann, managing director of equity research at Jefferies & Co., told FreightWaves on Wednesday. “And the fact is there is no other way to get U.S. presence” than a merger.
Navistar and TRATON share powertrain engineering and purchasing might that Navistar says is on track to save $5 billion over several years. At the NACV show, Navistar said its Canadian dealers would add sell Scania mining equipment. It represented TRATON’s first North American sales opportunity.
The anticipation of a deal drove Navistar shares 22.87% higher Friday. They closed $8.10 higher at $43.52.