Volkswagen Truck Chief Eyes Navistar Takeover

April 16, 2018 by Jerry Hirsch, @Jerryhirsch

Volkswagen Truck & Bus, already a major Navistar International Corp., shareholder, has its eyes on the entire company.

Andreas Renschler, VW’s truck chief, told reporters in Europe Monday that the German automaker thought buying the rest of the Lisle, Ill., truck company, would be “a good idea.”

Volkswagen is looking at many strategic options since firing Matthias Müller as chief executive last week and replacing him with Herbert Diess, formerly head of the company’s VW car brand.

VW also is considering spinning its truck and bus operations off as a separate company in a public stock offering. It would then be able to use the proceeds to acquire Navistar. Navistar has market value of about $4 billion.

Renschler and Troy Clarke, Navistar’s chief executive, have previously avoided commenting on a potential VW takeover of the U.S. truck company. Instead they have talked about the synergies of their business alliance.

Navistar is still avoiding public comment.

“What we can say is that our alliance with Volkswagen Truck & Bus, which recently celebrated its first anniversary, is already demonstrating strong progress. We look forward to continued success with our strategic alliance,” the company said in a statement.

Volkswagen Truck & Bus purchased 17 percent of Navistar for $256 million last year and gained two seats on the company’s board of directors. The partnership is expected to create $500 million in volume purchasing savings for Navistar over the first five years. The companies also are working together to develop a new line of diesel truck engines and electric trucks.

navistar lineup

Navistar’s International Truck lineup is among the newest in the industry. (Photo: Ryan ZumMallen/Trucks.com)

But purchasing Navistar, which sells the International Truck and IC Bus brands, is a logical move, analysts said.

Although it sells cars in the region, Volkswagen doesn’t have a truck presence in North America. Navistar has a large dealer footprint that’s valuable and not easily replicable.  Other European truck companies have followed a similar game plan and gobbled up legacy U.S. truck brands.

Daimler, the German company that owns Mercedes-Benz, has the Freightliner and Western Star brands in the U.S. Volvo, the Swedish company, owns Mack Trucks.

“To compete in the increasingly global truck market, truck makers need to leverage scale globally, not just regionally,” said Alexander Potter, an analyst at Piper Jaffray & Co. “No truck maker can claim global dominance if they don’t have a meaningful footprint in both the United States and Europe.”

Potter said Navistar is worth $44 a share but could sell for more because “100+ year-old truck makers aren’t acquired every day” and the company could have more value to VW.

Navistar could be worth as much as $60 a share in a takeover, according to financial management firm Robert W. Baird & Co. It was trading at about $40 a share on Monday.

Even at that premium, it would cost less to purchase Navistar than it would to build a distribution network in North America, said David Leiker, Baird’s analyst.

Based on the current ownership structure, VW can raise its stake 19.9 percent before needing approval from Navistar’s board to cross the 20 percent level, Leiker said.

Navistar’s other major shareholders include Icahn Associates Holding LLC at 17 percent and MHR Fund Management LLC at 16 percent.

After a series of setbacks resulting from engine technology troubles and reliability issues, Navistar is growing again. Its Class 8 truck market share grew 1.2 points in the first quarter compared with the same period in 2017. Last year was Navistar’s first full profitable year since 2011.

Potter doesn’t anticipate any major obstacles to a VW take over.

He said Navistar is the fourth largest major truck maker in the U.S., after Daimler, Paccar – which owns Kenworth and Peterbilt – and Volvo.

“We don’t see why it would make a difference to regulators whether Navistar was a public company or a subsidiary of VW,” Potter said. “The industry would not become more consolidated if a transaction were to take place.”

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