Volkswagen's truck division is acquiring a almost 17 percent stake in Navistar International Corp.as the German automaker seeks to gain a foothold in the North American heavy-duty truck market.
The Lisle, Illinois-based company had to kill most versions of its so-called premium vocational trucks in 2010 because they lacked diesel engines that complied with US federal air-pollution rules.
Volkswagen will buy 16.2 million shares of Navistar at $15.76 a share.
The deal should help both sides cut costs, give Volkswagen's trucks business a long-desired foothold in North America, and provide a source of new engines for Navistar, which has been looking for a partner since 2010 when it failed to get approval from U.S. regulators for its heavy-duty diesel truck engine. Both Clarke and Renschler also confirmed that Volkswagen already produces powertrain solutions to meet the demand of Navistar's full portfolio of vehicles. Those nameplates are unfamiliar to most North American buyers, but they accounted for 179,000 vehicles a year ago, including medium- and heavy-duty trucks built at 25 sites in 17 countries.
The equity investment: Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6% of post-transaction undiluted common stock (or 19.9% of pre-transaction outstanding common stock).
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Initially, those savings were expected to come in the form of cheaper raw materials and commodity components through Navistar's wide-ranging procurement alliance with Volkswagen.
Volkswagen's investment also provides a measure of stability for cash-strapped Navistar, which has battled worries from customers and investors that it would run out money. "We are now taking the next step on our way to becoming a global champion in the commercial-vehicles industry".
Bauendistel said he wonders whether supplying engines to the North American market might be "the largest motive of the deal from Volkswagen's perspective", despite the costs of transporting the machinery from outside the market. President & CEO Andreas Renschler said forming the alliance is "a flawless entry" for the German-based manufacturer into the North American medium- and heavy-duty commercial vehicle market. "The Cummins engine in our product is a great engine for us and we anticipate we'll continue to offer the Cummins product for a period of time", said Troy Clarke, Navistar president and CEO.
Volkswagen AG has been seen as a potential buyer of Navistar International Corp. This enhanced collaboration will enable the alliance to share the overall costs associated with future vehicle development. It will also have the right to appoint two directors to Navistar's board.
The strategic alliance will receive oversight from an alliance board, comprising top-level executives from both parties, which will align the product development and procurement processes between the companies. According to the U.S. Securities and Exchange Commission, the U.S. Environmental Protection Agency had raised concerns about the EGR strategy as early as 2011 and 2012, even as Navistar said that was the way to go.
