Volkswagen Truck & Bus is taking a 16.6-percent equity stake in Navistar as the two companies entered into a technology collaboration and procurement joint venture, with "all options" being open in terms of future investment.
Volkswagen Truck & Bus will initially infuse a $256 million capital investment, or $15.76 per share, which was 12 percent over Navistar’s closing price before the Labor Day weekend. Volkswagen Truck & Bus also agreed to hold its shares for a minimum of three years. President & CEO Andreas Renschler said forming the alliance is "a perfect entry" for the German-based manufacturer into the North American medium- and heavy-duty commercial vehicle market.
The deal remains contingent upon Hart–Scott–Rodino Antitrust filings.
Volkswagen Truck & Bus operates as a separate entity from Volkswagen, and Renschler said the Navistar deal was in no part related to a recent $14.7 billion settlement the automaker agreed to with the U.S. EPA and state regulators regarding the deliberate deliberate designing software to cheat federal emission laws for diesel cars.
Meanwhile, Navistar President & CEO Troy Clarke said it would be "logical" to assume that Volkswagen Truck & Bus engines could eventually power Navistar's International Truck and IC Bus models. Both Clarke and Renschler also confirmed that Volkswagen already produces powertrain solutions to meet the demand of Navistar's full portfolio of vehicles.
At this report, Navistar stock was up nearly six points, or more than 40 percent, on the news. (See Navistar’s most updated information.)
Navistar said it will use the $256 million investment “for general corporate purposes.” Navistar President and CEO Troy Clarke said during an investor and media call on Tuesday that the alliance will also result in a new truck or bus release every four to six months, on average. He added that the company is renewing its entire portfolio over the next year and a half.
The deal also includes Volkswagen Truck & Bus appointing two additions to Navistar’s board of directors, replacing James Keyes and Michael Hammes, who announced their retirement Tuesday, effective at the completion of the share issuance to Volkswagen Truck & Bus or at Navistar's 2017 Annual Meeting of Stockholders.
Navistar added that it expects the alliance to be fully accretive in the first year and that “cumulative synergies” will increase to at least $500 million over the first five years. In year five, Navistar said it expects the alliance will generate annual synergies of at least $200 million for the Lisle, Illinois-based parent company of IC Bus.
“Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale,” commented Clarke. “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.”
Clarke explained that the Volkswagen Truck & Bus equity investment is expected to strengthen Navistar’s liquidity position and expand financial flexibility, “while aligning us with a valuable strategic partner.”
The company’s said the procurement joint venture is expected to leverage the purchasing power of Volkwagen Truck & Bus’ Scania, MAN and Volkwagen Caminhões e Ônibus brands in addition to Navistar’s International and IC Bus brands. The result, the companies said, will create improved pricing for customers.
On the technology end, the partnership will focus on an extensive list of powertrain technology solutions delivered to Navistar by Volkswagen Truck & Bus by 2019. The companies said they will share the overall costs of future vehicle development as well as developing advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components.
Navistar said its products will also benefit from Volkswagen Truck & Bus components and technology through licensing and supply agreements.
Volkswagen Truck & Bus CEO Andreas Renschler did not rule out a full merger in a call with media Tuesday. He said “all options are open” in terms of the company’s interest in a full stake in Navistar or spinning off the truck and bus business from its German parent company.
“We are now taking the next step on our way to becoming a global champion in the commercial vehicles industry,” he added. “The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides.”