Volkswagen purchases 16.6% stake in heavy-duty truck engine maker

The German auto-maker’s truck and bus division will establish a joint venture with engine manufacturer Navistar International in an effort to collaborate on the development of new technologies in the sector.    The truck and bus division of German auto-maker Volkswagen AG will establish a joint venture with Navistar International in an effort to collaborate on the development of new technologies in the sector, the companies said in a joint statement.
   Under the agreement, Volkswagen Truck & Bus will purchase a 16.6 percent stake in the truck engine manufacturer – 16.2 million newly issued shares at $15.76 per share – for a total consideration of $256 million. The division will hold the shares for a minimum of three years, and will also have the option to appoint two directors to the Navistar board.
   Navistar said the strategic alliance will enable it to offer “expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus’s products and components, while better optimizing its product development spend,” as well as strengthening the company’s liquidity position.
   The partnership is expected to focus on powertrain technology solutions and commercial vehicle development, including advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components, as well as allow the companies to share overall costs associated with future vehicle development.
   “Navistar products will benefit from Volkswagen Truck & Bus components and technology through licensing and supply agreements entered into pursuant to the framework agreement for strategic technology and supply collaboration, which longer term will generate increased parts sales,” the company said.
   In addition, the procurement joint venture is expected to provide Navistar with enhanced global scale by leveraging the purchasing power of Volkswagen Truck & Bus’s three major truck brands – Scania, MAN and Volkswagen Caminhões e Ônibus – along with Navistar’s own International and IC Bus brands.
   Navistar said it expects the strategic alliance to be accretive within the first year, and allow the company to realize cumulative synergies of $500 million over the first five years of the agreement.
   The alliance will be overseen by an alliance board that will comprise top-level executives from both companies and align the product development and procurement processes between the two.
   “We are very pleased to partner with a global leader who shares our view of the world, in an alliance that will deliver multiple benefits and is consistent with our open-integration strategy,” Navistar President and CEO Troy Clarke said of the collaboration. “Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale. Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies and enabling Navistar to deliver enhanced uptime. Volkswagen Truck & Bus’s equity investment will strengthen our liquidity position and expand our financial flexibility, while aligning us with a valuable strategic partner.”
   “Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context,” added Andreas Renschler, CEO of Volkswagen Truck & Bus and member of the Board of Management of Volkswagen AG responsible for commercial vehicles. “We are now taking the next step on our way to becoming a Global Champion in the commercial vehicles industry.”
   “We expect this alliance will create significant global scale, yielding considerable cost savings for both companies,” said Walter Borst, EVP and chief financial officer at Navistar. “We believe working collaboratively, the two companies can optimize the capital and engineering expenditures associated with next-generation truck and bus engine development, while providing both Navistar and Volkswagen Truck & Bus with opportunities for substantial procurement savings.”
   The timing of the closing of the share purchase agreement and implementation of the strategic alliance is subject to regulatory approvals and other customary closing conditions.
   J.P. Morgan is acting as financial advisor to Navistar in the deal, while Sullivan & Cromwell LLC is acting as the company’s legal advisor. Rothschild served as financial advisor to Volkswagen Truck & Bus; and Davis Polk & Wardwell LLP, CMS Germany and Bär & Karrer as legal advisors.