As Truck and Bus has been predicting for some time, Volkswagen’s commercial vehicle arm, Traton, has finally made a firm bid to take over the remaining 83 per cent of US truck maker Navistar, that it currently does not own, giving it the foot hold it has been lacking in the crucial North American truck market.
Traton has offered to buy the rest of Navistar International for $AUD4.3 billion ($US2.9 billion) to enable it to step up its challenge to Daimler, Volvo and Paccar as a global truck maker.
It is a move that has been coming for some time and mirrors the efforts of Traton CEO Andreas Renschler in his former role at Daimler, where he was the architect of its buy up of global truck assets including Freightliner and Western Star in the USA and Fuso in Japan.
Volkswagen floated Traton in an IPO mid-way through 2019, offering 11.5 per cent of the truck division, which raised around $AUD 3.3 billion ($US2.2 billion) while retaining control of the now separate heavy commercial division, which contains Scania, MAN and VW Commercial Brazil. It was one of Europe’s biggest IPOs last year.
VW also recently sold off industrial machinery unit, Renk, for around $AUD1.2 billion, which many saw as the precursor to a raid on the remaining shares it sought in Navistar. Renk was acquired as part of the automaker’s acquisition of MAN and represents a rare streamlining move by VW
The acquisition of Navistar would enable Traton to spread its operations and reduce reliance on its European and South American truck operations.
Traton has offered Navistar shareholders $AUD52 ($US35) a share in cash, 45 per cent higher than Navistar’s closing price last Thursday. Naturally the market reacted on Friday with Navistar shares rising 56 per cent to a high of $AUD55.99.
Navistar’s board has said it will review the proposal and added that there’s no assurance the deal will take place. However with Navistar under pressure in the US market where it recently flagged a 10 per cent cut in jobs as well as cutting its 2020 revenue forecast to below lowest analyst estimates, Traton’s full takeover may be Navistar’s saviour, or at the very least halt the continuing boom and bust cycle the company has endured over the past decade.
VW first purchased a stake in Navistar in September 2016, laying the groundwork for its operations in North America, which is the global truck industry’s largest source of profits. Daimler’s Freightliner and Volvo’s Mack divisions generate significant sales in the region and have been a major driver of profits for those corporations as well as the perennially profitable Paccar, maker of Kenworth and Peterbilt in the US and DAF in Europe.
The biggest hurdle for Traton in its bid to acquire all of Navistar appears to be Carl Ichan, an 83 year old financier who is the Navistar’s largest shareholder with 16.9 per cent of the company, as well as Mark Rachesky, the founder and chief investment officer of MHR Fund Management, which is Navistar’s third-largest shareholder with a 16 per cent stake.
Icahn, first bought into Navistar in 2011 and built his holding with an average cost per share of $AUD50.23 ($US 33.62), while Rachesky’s average price paid was $AUD41.53 ($US27.80). Both will be looking to maximise their returns on a company that has under performed in recent times.
If a deal closes, Traton will take over Navistar in the midst of a corporate overhaul, restructuring its operations under chairman and CEO, Troy Clarke since 2013, and last year rolled out a new five-year plan titled “Navistar 4.0” that aims to increase pre-tax profit margins to 12 per cent by the end of 2024, from just under 8 per cent for the 2019 year.
From an Australian perspective, if the Traton Navistar deal is completed, there will again be speculation that the new organisation will consolidate operations down under. Currently the highly successful Scania is the only factory owned Traton truck subsidiary in Australia with both MAN and Navistar handled by distributors, Iveco in the case of Navistar International and Penske with MAN. Both sell below their potential, with MAN having its sales numbers inflated by deliveries to the Australian Army over the past 18 months in a deal that was inked in Germany by MAN HQ. This meant that while MAN sold 1020 trucks in Australia in 2019, this was well above its normal yearly sales average. Without the Army sales the brand sells about 50 trucks a month to normal civilian buyers. Navistar’s International was even more disappointing, selling just 54 trucks in Australia last year to take just 0.1 per cent of the market.
Consolidating all three brands into a single Australian Traton operation would bring tremendous economies of scale and streamline back of house costs utilising a single admin with accounting, IT and HR while running separate sales channels for each brand.
This would be similar to how Daimler sells Mercedes, Freightliner and Fuso from one operation, how Volvo markets Volvo, Mack and UD and how Paccar sells Kenworth and DAF. A consolidated Traton operation could potentially be based at the factory owned Scania HQ operation in Melbourne, but would require the MAN franchise to be brought back from Penske and the International agreement to be ended with Iveco. Given Iveco and Traton are major competitors in Europe the later would possibly be easier than the former but both must be on the cards if the Navistar deal is completed.