Editor’s Note: Updates and expands throughout
TRATON Group and Navistar International Corp. (NYSE: NAV) reached a definitive agreement Saturday on TRATON’s $3.7 billion takeover of the maker of International trucks and IC buses. It concludes TRATON’s on-again, off-again four-year pursuit.
TRATON is paying $44.50 a share for the 83% of Navistar it does not already own. The merger is expected to close in mid-2021. The board of Volkswagen AG, the largest shareholder in TRATON, voted in favor of the merger. It will finance it through Volkswagen Luxemberg S.A., TRATON’s parent company.
An unsolicited offer of $35 a share, or $2.9 billion, in January kicked off the talks that led to the final price agreed upon in October. Saturday’s vote was key to the deal because Navistar’s two other largest shareholders, philanthropist Carl Iachn and MHR Fund Management, have agreed to vote in favor of the merger.
Navistar and TRATON have a purchasing and powertrain manufacturing alliance that has saved $3 billion in recent years. The former VW Truck & Bus Group paid $256 million for 16.8% of Navistar in September 2016.
“This transaction builds upon our highly collaborative and successful strategic alliance and further enhances the growth trajectory of the combined company, while delivering immediate and substantial value to our shareholders,” Navistar President and CEO Persio Lisboa said.
Moving on up
Navistar is the fourth-largest heavy-duty truck maker in North America. Joining TRATON, which owns the MAN, Scania, and Volkswagen Caminhões e Ônibus brands, gives it size and resources to grow.
“The acquisition of Navistar will significantly leverage TRATON’s positioning in North America, one of the biggest and most profitable markets for heavy trucks,” Gunnar Kilian, a member of the Volkswagen Board of Management, said in a press release. “Together, the companies can enhance scale and reach in key markets as well as create further synergies.”
TRATON has a significant presence in Europe and South America. The door to North America is now open for its brands. Navistar started that process in 2019 when it said its Canadian dealers would sell Scania mining equipment.
“Today’s announcement accelerates our Global Champion Strategy by expanding our reach across key truck markets worldwide, including scale and capabilities to deliver cutting-edge products, technologies and services to our customers,” TRATON CEO Matthias Gründler said.
Cheers from the sidelines
“I think it’s great long term,” International Truck dealer W.M. “Rusty’ Rush, president and CEO of Rush Enterprises Inc. (NASDAQ: RUSHA) told analysts on the company’s third-quarter earnings call.
“It brings a strong global partner to leverage, from a new product perspective going forward, especially with the amount of money it’s going to take with all this new technology.”
For example, TRATON invested in autonomous trucking startup TuSimple after Navistar announced a partnership with TuSimple in July. Navistar and TuSimple are working on a Level 4 autonomous truck for release in 2024. Level 4 autonomy means the truck can operate without a driver in most conditions.
Rush is the nation’s largest network of commercial truck dealerships. Navistar and PACCAR Inc. (NASDAQ: PCAR) are the main new truck brands Rush sells.
TRATON, Rush said, did not want to try to start from scratch in entering the North American market. TRATON’s main rivals Daimler Trucks North America and Volvo Trucks North America have a huge head start.
“It just doesn’t work that way in the commercial truck business,” he said. “This is just a conclusion of the way it was supposed to work when TRATON bought a piece of [Navistar) three or four years ago.”
The Wall Street view
Longtime analyst Stephen Volkmann, managing director of equity research at Jefferies & Co. said the only mystery was when, rather than if, a merger would occur.
“I have expected that combination would be done for a long time,” Volkmann told FreightWaves on Friday. “It would have been a surprise if it didn’t happen.”
Jefferies set a $45 price target for Navistar shares just after TRATON increased its initial offer from $35 to $43 a share in September. The firm cut its recommenation from “buy” to “hold” in October.
Ten equities research analysts have rated the stock with a hold rating and three have issued a buy rating to the company. Navistar International currently has an average rating of “Hold” and a consensus price target of $33.83.
Rating agency sees positives
Fitch Ratings views the merger as a positive development for Navistar’s credit profile. Fitch rates Navistar negative with a B- rating, in part because of the coronavirus pandemic and its impact on Navistar’s revenue and profits.
“By spreading investments in technology and product development across a larger base, the combined company will be positioned to compete with other global truck manufacturers as the industry evolves to meet requirements around emissions, connectivity and autonomous vehicles,” Fitch said.
The definitive agreement nearly brings to a close the courtship begun by former TRATON CEO Andreas Renschler with Troy Clarke, the former Navistar Chairman, president and CEO. Clarke stayed on at Navistar as executive chairman to see the merger through.