German auto and truck technology and parts supplier ZF Friedrichshafen plans to acquire rival Wabco in a deal valued at $7 billion.
The merger, expected to close early next year, will create a global auto and transport technology behemoth that will have deep expertise in automated systems, transmissions and a wide range of automotive software and component technology.
“This will create the foundation for ZF to offer comprehensive systems for safe and automated mobility solutions for passengers and goods to our customers,” Wolf-Henning Scheider, ZF’s chief executive, said Thursday.
He called the deal a “planned strategic acquisition,” consistent with ZF’s goal to develop technology that make cars and commercial vehicles “see, think and act in order to reduce emissions and increase road safety.”
Analysts also thought the acquisition is a smart move.
There is good strategic rationale for this combination, said Alexander Potter, an analyst at Piper Jaffray & Co.
“Self-driving technology has the potential to fundamentally change the freight hauling landscape. However, because of the specialized skillset required – and because of the limited number of engineers with the requisite expertise – we think there will be relatively few companies that are properly equipped to address this trend. By combining their businesses, ZF and WBC will have the resources – and product coverage – necessary to dominate this segment,” Potter said in a report to investors.
Best known for its smooth shifting automatic transmissions used by many automakers in cars, SUVs and pickup trucks, ZF already has a suite of sensor systems and computing technology that provide automated functions in light vehicles. Wabco will round out its portfolio by adding commercial vehicle technology especially for automatic braking, which makes up the foundation of autonomous driving.
“Joining forces with highly respected ZF will create a leading global technology company well positioned to capitalize on future demand for autonomous, efficient and connected commercial vehicles,” said Jacques Esculier, chairman and chief executive of Wabco.
The combined company will have annual sales of about $45 billion.
The deal calls for ZF to pay $136.50 per Wabco share. The price is about 7 percent below where Wabco shares traded Wednesday but about 13 percent above where the stock price stood before rumors of the acquisition circulated.
“We believe investors are likely disappointed by the takeout valuation,” said David Leiker, an analyst at Baird Equity Research. But they aren’t likely to get more.
“We do not expect other offers and view ZF as the most logical acquirer given their size, complementary commercial vehicle business, and stated aim to grow this area of their business,” Leiker said in a report to investors.
Other companies with reported interest in Wabco included tire and technology supplier Continental and engine maker Cummins.
“We do not expect either to make a competing offer. Continental is pursuing other areas of investment while Cummins has remained focused on powertrain-related products,” Leiker said.
Now based in Belgium, Wabco was founded in the U.S. in 1869 as Westinghouse Air Brake Co. ZF owners are the Zeppelin Foundation, the Jürgen family and the Irmgard Ulderup Foundation.