Traton Makes Offer For NAV

[RoadwayR]

https://www.chicagobusiness.com/manufacturing/vw-wants-buy-rest-navistar-29-billion

 

Interesting, didn't think it would have come so soon.  Then again, with NAV shares trading low......

[kscarbel2]

VW Plots U.S. Truck Expansion With $2.9 Billion Navistar Offer

Bloomberg  /  January 30, 2020

Volkswagen offered to buy the rest of Navistar International in a $2.9 billion bid to secure a bridgehead in the U.S. heavy-truck market and step up its challenge to Daimler and Volvo.

The expansion was somewhat offset by Volkswagen’s first major divestment since the German automaker skidded into the diesel-emissions scandal in 2015. An agreement to sell industrial machinery unit Renk AG, valued at 760 million euros ($840 million), indicates VW is more inclined to bulk up than slim down, even amid the costly shift to electric cars.

The swoop for Navistar would reduce the reliance of VW’s heavy-truck unit Traton SE on Europe and South America.

While the deal could help the company vie with Daimler and Volvo in North America, heavy-truck makers are preparing for a downturn after years of growth. Navistar, truck-engine maker Cummins and supplier Meritor announced thousands of job cuts late last year.

VW’s heavy-truck division was created from acquisitions of Germany’s MAN and Sweden’s Scania. The unit had for years struggled to combine the operations before hiring former Daimler executive Andreas Renschler, who successfully spearheaded a partial listing of Traton last year.

Traton offered Navistar holders $35 a share in cash, 45% higher than its Thursday closing price. Lisle, Illinois-based Navistar -- which builds International-brand trucks, school buses, defense vehicles and engines -- said its board will review the proposal and there’s no assurance the deal will take place.

Shares of Navistar, whose biggest holder is billionaire investor Carl Icahn, soared as much as 53% to $36.79 in late trading on Thursday. VW, which already owns a stake of almost 17%, gained 0.4%. at 9:51 a.m. in Frankfurt on Friday. Traton shares rose 0.3%.

VW purchased its stake in Navistar in September 2016, laying the groundwork for a footprint in North America, the truck industry’s largest source of profits. Daimler’s Freightliner and Volvo’s Mack divisions generate significant sales in the region.

It’s unclear whether VW’s offer will satisfy Icahn, 83, and Mark Rachesky, the founder and chief investment officer of MHR Fund Management, which is Navistar’s third-largest shareholder with a 16% stake.

Icahn, who first bought into Navistar in 2011, built his holding with an average cost per share of $33.62, and the stock has traded below that level for most of the last year. Rachesky’s average price paid was $27.80.

Rare Streamlining

If a deal closes, VW will take over a company in the midst of a fix-it job. Navistar said in December it will reduce employment by 10% and cut its 2020 revenue forecast to a range of $9.25 billion to $9.75 billion, below analysts’ lowest estimate.

Alongside the expansion, Wolfsburg, Germany-based VW agreed to sell Renk to private equity firm Triton Partners. The company was acquired as part of the automaker’s acquisition of MAN and represents a rare streamlining move by VW, which has been reviewing its non-core businesses for years with little progress.

[kscarbel2]

Traton Makes Much-Anticipated Bid to Acquire Navistar

Jack Roberts, Heavy Duty Trucking (HDT)  /  January 31, 2020

News broke late Jan. 30 that Volkswagen’s  global truck unit, Traton SE, is finally making its long-anticipated bid to fully acquire all stock holdings of Navistar International.

Since 2016, Volkswagen, through subsidiary Traton, has acquired a nearly 17% stake in Navistar. Now the company has made an unsolicited bid to acquire the remaining Navistar stake for $35 a share, representing a 45% premium on the company’s closing price of $24.07 a share on Thursday, according to a report in the Wall Street Journal. This would put Navistar’s total valuation at $3.5 billion, WSJ added.

Shares in Navistar rose 51% in after-hours trading.

Traton and Navistar

Traton was formed in 2018 out of Volkswagen’s Truck and Bus Group, in order to spearhead the German automaker's push to become a major player in the global commercial vehicle market. That bid included establishing a presence in North America – the world’s highest volume commercial vehicle market. To further that goal, Volkswagen had already developed a close relationship with Navistar, in 2016 announcing a strategic alliance that included various research and development projects. That alliance has helped lead to Navistar introducing a version of Volkswagen truck brand MAN’s diesel engine as the International A26 engine for International Class 8 trucks and more recently, a prototype electric medium-duty truck.

Navistar struggled in the wake of its controversial decision on how to meet the Environmental Protection Agency's emissions 2010 standards. It decided to forego selective catalytic reduction (SCR) downstream exhaust technology to reduce diesel emissions in favor of advanced exhaust gas recirculation (EGR) technology. The company’s MaxxForce family of diesel engines were plagued with technical issues, largely related to the significant increase in waste heat they generated due to their advanced EGR systems, and Navistar’s commercial vehicle market share and stock price suffered as a result.

Navistar endured a long series of lawsuits over the failure of the MaxxForce engines to perform as advertised, but settled all pending complaints and “closed the books” on those engines last year.

In a press statement, Traton said that as the global commercial vehicle industry continues to evolve, it believes that the proposed transaction is the logical next step and would result in even greater benefits. Traton said the combined company would be better able to meet the demands of new regulations and rapidly developing technologies in connectivity, propulsion and autonomous driving. Combining Traton’s leading position in the European and South American markets with Navistar’s presence in North America would create a leader with global reach and complementary capabilities, it said. 

“Over the past three years, we have benefitted from a highly collaborative and productive strategic alliance with Navistar,” Traton CEO Andreas Renschler said in the press statement. “As the market continues to evolve, we believe there are compelling strategic and financial benefits to a full combination of Traton and Navistar. The proposed transaction would create a leader in commercial vehicles with global scale and a strong portfolio of leading brands and cutting-edge products, technologies and services while delivering immediate and substantial value to Navistar stockholders.”

The transaction would also provide substantial value to Navistar stockholders through an immediate and certain cash premium, it noted.

Will a Traton-Navistar Deal Happen?

Navistar issued a news release confirming the news of the offer, saying it would carefully review and evaluate the proposal, and advised its shareholders to take no action at this time.

“There can be no assurance that any negotiations between Navistar and Traton regarding this proposal will take place, and if such negotiations do take place, there can be no assurance that any transaction with Traton will occur or be consummated," the statement read.

A report in Barron's noted that one stumbling block could be the need to win over Navistar's largest shareholder, Carl Icahn, whose fund controls 16.9% of Navistar’s shares. "Icahn and two other activist funds, Mark Rachesky’s MHR Fund Management and Gabelli Funds, together own 40% of Navistar’s shares, according to Refinitiv data," Barron's reported. "Rachesky and another MHR executive, Raymond Miller, sit on Navistar’s board [of directors], as does a representative of Icahn’s interests. Traton Chief Executive Andreas Renschler and the German truck maker’s chief financial officer, Christian Schulz, also have seats on Navistar’s board."

That board, as Navistar noted in its statement, "in consultation with its financial and legal advisors, will carefully review and evaluate the proposal in the context of Navistar's strategic plan for the company in order to determine the course of action that it believes is in the best interest of the company and its stakeholders."

Jeffery Kaufman, managing director for Loop Capital and a Navistar shareholder, told HDT in a statement that the Traton offer “feels light.”

“We reaffirm our Buy rating and $38 price target based on forward fundamentals,” Kaufman said in a market analysis his firm issued on the proposed deal. “We believe the unsolicited proposal by Traton SE to take over the remaining 83.2% of the company that it doesn't own is inadequate. Recall that during Navistar's analyst day last fall, implied management targets to 2024 suggest a $120+ share price over the next five years. Clearly the cycle will be near a low point for the next 12-18 months, and coming in with a bid to acquire the shares makes sense – however, our current sum-of-parts valuation for Navistar yields $51.”

[james j neiweem]

F***in A Awful. A word to the board of directors at Navistar. Stiffin up those rubbery spines and get some balls!!!  Skeeru the share holders. You might be eligible for a government bail out like GM and Chrysler seeing that you are a US defense industry supplier. Enough of this European raiding of our industries. 

Edited February 1, 2020 by james j neiweem

[Maxidyne]

Given the downward sales trend in the heavy truck market, this is probably the best NAV shareholders will get.

[RoadwayR]

I agree that the offer is a bit light.  Might sound good now, but when the cyclical truck market goes up a bit.....

Never know, it might spur a competitive offer from someone else.

Edited January 31, 2020 by RoadwayR

[Jamaican Bulldog]

On 1/31/2020 at 6:47 AM, kscarbel2 said:

VW purchased its stake in Navistar in September 2016, laying the groundwork for a footprint in North America, the truck industry’s largest source of profits. Daimler’s Freightliner and Volvo’s Mack divisions generate significant sales in the region.

I still can't get over how North America is the truck industry's largest source of profits but somehow most of the American brands of heavy trucks eventually became European or foreign owned. SMH

[convoyduel]

The R&D costs of designing Class 8 trucks and remaining on top of government vehicle mandates, emissions mandates and the like cannot be carried within the pricing of relatively low volume, high production cost Class 8 trucks.  The European companies that are buying into American truck brands have R&D and engineering resources through their other automotive brands.  Modem vehicle technologies like lighting, electrical systems, canbus and multiplex electrical architecture cannot be supported by Class 8 sales alone yet remain at or near the leading edge of the various technologies.  

[Dirtymilkman]

On 2/3/2020 at 7:03 AM, convoyduel said:

The R&D costs of designing Class 8 trucks and remaining on top of government vehicle mandates, emissions mandates and the like cannot be carried within the pricing of relatively low volume, high production cost Class 8 trucks.  The European companies that are buying into American truck brands have R&D and engineering resources through their other automotive brands.  Modem vehicle technologies like lighting, electrical systems, canbus and multiplex electrical architecture cannot be supported by Class 8 sales alone yet remain at or near the leading edge of the various technologies.  

Autocar seems to be making it go. Being big and selling a lot doesn't make you the best. Most manufacturers now are appeasing shareholders. They want profits and dividends. 

[james j neiweem]

Jam Bulldog: Greetings, They don't just become fodder for the European globalists by accident. The board of directors vote on it and the CEO rubber stamps it. US industry pays more attention to the shareholders than the long range good of the American Industry. Too bad' more US capital doesn't step up to the plate and invest in our industrial base.

[Maxidyne]

Capital is international, as are most market sectors today- Investors look for opportunities everywhere, and why build a truck for just 5% of the world?

[Red Horse]

On 2/4/2020 at 10:55 PM, Dirtymilkman said:

Autocar seems to be making it go. Being big and selling a lot doesn't make you the best. Most manufacturers now are appeasing shareholders. They want profits and dividends. 

Excellent point.  Plenty of gloom and doom as to WHY someone CAN'T do it, and here we have this guy building  from scratch a high end class 8.  Maybe that is it-high end as in high cost and therefore greater margins than say the volume builders like Freightliner, International and Volvo are doing.  And as you correctly point out- more a matter of appeasing Wall St and the financial press.

Ford is another example.   Every time I've ever questioned why Ford did not offer a Cummins/Allison option on the BON website I get the ..."too expensive" excuse.  Forget about the fact that they offered that option in the old 650/750-both the ones built at the Ford plant in Cautilan (Sp?) Mexico (2000-2003) but also the ones built in the Bluediamond JV plant at Escobedo from 2004 until the move to the Ford Avon Lake plant.  Not exactly a major  engineering effort to put that power train combo back  in the mix.   

I totally get it on profitability. But today management is so focused on looking good in the short term they ignore a broader product line that  at some point just might smooth out the peaks and valleys  in the profitability chart.

[Maxidyne]

Building a mediocre truck is actually pretty simple and cheap- Just go with the standard since the 1930s SAE 34" frame rail spacing, add vendor drivetrain, and build a shack on top with windows and a couple doors to cover the engine and give the driver some protection from the weather. That formula worked just fine for KW, Pete, and Freightliner for decades until the market got a chance to try trucks like Macks that had actually seen the inside of a wind tunnel and spent time on the shake table. So now at least enough aerodynamic development to keep the windows clean, a driving position that won't produce worker's comp claims, and enough insulation to keep the driver comfortable are expected. Wind tunnel and shake table time is expensive, and don't expect your competitors to offer there's at any price. Then figure in the cost of buying vendor components in small quantities- International isn't exactly a small customer and they're saving double digit percentages by buying with VW Group/Traton. So yes, you can slap together a truck with vendor components, worked fine a half century ago. But don't expect to make any money doing it.

[kscarbel2]

Take the money and run, Navistar

Joe Cahill, Crain’s Chicago Business  /  February 4, 2020

The Lisle-based truck maker is lucky to be getting any buyout offer, let alone a premium bid when the industry is heading into a slump.

After years of futility, Navistar is on the verge of getting the money and muscle it has needed since emerging from the breakup of International Harvester more than three decades ago.

All it has to do is accept a buyout offer from the truck unit of Germany’s Volkswagen. Last week, Traton offered $35 per share for the 83 percent of Lisle-based Navistar it doesn’t already own. Navistar isn’t commenting beyond a statement promising to “carefully review and evaluate the proposal in the context of Navistar's strategic plan for the company in order to determine the course of action that it believes is in the best interest of the company and its stakeholders.”

In general, I don’t like to see local corporate stalwarts acquired by out-of-town buyers. Job losses and disinvestment usually follow. It would be especially sad to lose the last independent Chicago-area company with roots stretching back to Cyrus McCormick and his reaper.

Sentimental attachment notwithstanding, Traton’s offer is the best—and possibly the last—chance to put Navistar on firm financial footing and provide its shareholders with a return on their investment in a company that has struggled to compete with larger rivals and generate consistent profits since selling off the International Harvester agricultural business to focus on making trucks and truck engines back in 1985.

Navistar’s story over those years has been a tale of persistent losses, periodic missteps and consistent competitive setbacks. Undersized in a notoriously cyclical industry dominated by giants like Germany’s Daimler, which makes Freightliner trucks, Navistar lost money in 10 of the last 20 years. Last year, it reported net income of $221 million on $11 billion in revenue, down 35 percent from a $340 million profit in 2018 on $10 billion in sales.

To keep afloat, Navistar resorted to restructurings and plant closings that vaporized thousands of jobs. A new round of layoffs will reduce headcount to about 12,000, down 42 percent from more than 20,000 in 2011.

Investors suffered alongside workers, as Navistar shares lost 60 percent of their value since 1986. During the same period, the S&P 500 climbed 1,455 percent and rival Paccar, which makes Peterbilt and Kenworth trucks, saw its stock soar 3,206 percent.

Navistar’s woes included some self-inflicted wounds. Accounting errors forced the company to restate financials and caused a brief delisting of Navistar stock. The U.S. government has joined a whistleblower lawsuit, accusing Navistar’s military equipment unit of overcharging the Pentagon. Navistar has defended its pricing as “fair, reasonable and competitive.”

By far the worst blunder was Navistar’s decision to develop a new engine using unproven new technology. The engine not only failed to meet new environmental protection standards, but tended to break down. The episode triggered hundreds of millions in warranty claims and lawsuits, while shattering Navistar’s reputation with customers.

Doubts about the quality of Navistar’s products will make it harder to sell a new engine the company is developing in partnership with Traton to compete with a popular offering from engine specialist Cummins. At the same time, a weak balance sheet showing a shareholder’s deficit of $3.7 billion will make it harder to ride out the next industry downturn, which appears to be getting underway.

Shallow pockets also threaten Navistar’s ability to keep pace with technological changes reshaping the trucking industry. The company needs to make big investments in electric powertrains and automated driving systems.

“Navistar’s been lagging in electrification and fuel cell technology,” says analyst Scott Pope of Morningstar. “They’re going to need the backing of a larger entity.”

A buyout by Traton would make all these challenges more manageable. Customers likely would be more willing to consider Navistar’s new engine if it has the full backing of Traton. Combining Navistar’s annual production volume of 100,000 vehicles with Traton’s 230,000 would create an entity with greater heft to compete with industry leader Daimler, which makes 500,000 vehicles a year.

Financially, a hookup would not only provide ballast for navigating cyclical fluctuations, but also give Navistar access to deeper budgets for investment in new technologies.

As for the impact of a buyout on Navistar’s workforce, there’s no denying that some jobs likely would be lost. Yet the wholesale layoffs associated with many mergers seem unlikely. Traton sees Navistar as its entrée to the North American market, where it has no significant operations. It would need Navistar plants and workers to carry out its expansion here. Employees’ long-term prospects may be brighter under Traton than an independent Navistar that’s in perpetual cost-cutting mode.

While the business logic of combining appears strong, price remains an issue. Traton has offered a premium of 45 percent to Navistar’s stock market price before the bid was announced. But the offer values Navistar at 7.3 times its projected 2020 earnings before interest, taxes, depreciation and amortization, below the 8-plus multiples of competitors Paccar, Volvo and Cummins.

Corporate raider Carl Icahn and onetime protege Mark Rachesky, who hold a combined 33 percent of Navistar stock, may push for more money. And Navistar appears to have some negotiating leverage. The company offers Traton its only realistic opportunity to become a significant player in North America within a reasonable time frame. On the other hand, no competing bidder has emerged to push up the price.

Navistar directors should leave no money on the table. But they should also be realistic about the company’s value. Navistar is lucky to be getting any buyout offer, let alone a premium bid when the industry is heading into a slump. And if Traton walks away, Navistar’s future looks a lot like its past.

[Jamaican Bulldog]

On 2/3/2020 at 8:03 AM, convoyduel said:

The R&D costs of designing Class 8 trucks and remaining on top of government vehicle mandates, emissions mandates and the like cannot be carried within the pricing of relatively low volume, high production cost Class 8 trucks.  The European companies that are buying into American truck brands have R&D and engineering resources through their other automotive brands.  Modem vehicle technologies like lighting, electrical systems, canbus and multiplex electrical architecture cannot be supported by Class 8 sales alone yet remain at or near the leading edge of the various technologies.  

Great points. Sound good unviable  government mandates simultaneously helped killed domestic makers while putting many truckers out of business. You are right many European makers were large enough and could spread R&D throughput other vehicle lines. GM and Ford could have done that too but abandoned class 8 as they mismanaged the rest of their auto business.

[Jamaican Bulldog]

On 2/6/2020 at 1:43 PM, Red Horse said:

Ford is another example.   Every time I've ever questioned why Ford did not offer a Cummins/Allison option on the BON website I get the ..."too expensive" excuse.  Forget about the fact that they offered that option in the old 650/750-both the ones built at the Ford plant in Cautilan (Sp?) Mexico (2000-2003) but also the ones built in the Bluediamond JV plant at Escobedo from 2004 until the move to the Ford Avon Lake plant.  Not exactly a major  engineering effort to put that power train combo back  in the mix.  

So right about that. After the excellent 7.3 power stroke if they had gone Cummins/allison they would not have had to go through the expensive warranty costs associated with the disastrous 6.0 plus losing droves of customers. I am not sure if Dodge/Ram had exclusivity on the Cummins in the class 2 to 5 and can't see why it would have been more expensive to have those vendor components. 

[TS7]

" Doubts about the quality of Navistar's products" says it all. Get real, there done. 

[kscarbel2]

8 hours ago, Jamaican Bulldog said:

So right about that. After the excellent 7.3 power stroke if they had gone Cummins/allison they would not have had to go through the expensive warranty costs associated with the disastrous 6.0 plus losing droves of customers. I am not sure if Dodge/Ram had exclusivity on the Cummins in the class 2 to 5 and can't see why it would have been more expensive to have those vendor components. 

After buying 10.8 percent of Cummins in 1990, Ford should have gone ahead and bought the rest, rather than selling their stake in 1997*.

Likewise, Ford should NOT have sold the superb new HN80 range to German foreign aggressor Daimler in 1997.

______________________________________________________________

* The New York Times from Bloomberg News  /  January 4, 1997

The Cummins Engine Company said yesterday that it had bought back 1.3 million of its common shares from the Ford Motor Company and would repurchase 1.7 million more shares on the open market.

The company also said that Kenneth R. Dabrowski, a vice president at Ford, had resigned from Cummins Engine's board, as planned under a 1990 investment agreement with the auto maker.

Cummins, a maker of diesel engines, said it would issue 3.75 million shares of its common stock to an employee benefits trust. The stock would be used to finance employee retirement savings programs.

In New York Stock Exchange trading, Cummins Engine rose $1.25, to $46.

After the purchase from Ford, Cummins has about 38.2 million shares outstanding.

[RoadwayR]

Yeah, what was that all about?  For a minute there in the early 90's it looked like Ford was going to buy Cummins and with the HN80 make a very serious effort in class 7/8.  Then without warning the whole HN80 program was given to Freightliner, they baled on Cummins, and the remnant of medium they held on to (F Series) was sent to Mexico and the option list was severely curtailed.  Something sure changed Ford's mind.

While this was all going on, there were rumors that the B5.9 was going into the F-250 and 350.  Like many, I was a fan of the 5.9 but not of the 1972 Dodge pickup in came in (good truck in it's day).  I was ready to go to Don Kott Ford in Carson with a sizeable down payment the moment the 5.9 option was announced for the F-350.  Needless to say that never happened, though the 5.9 went into the F series mediums.

In retrospect Ford should have sold the old Louisville until they needed KTP for the Super Duty, and never bothered with the HN80.  I thought the HN80 had some clever features, but was a pretty poor execution.  Freightliner spent a lot of money trying to straighten out that truck, but even with that it never had a reputation beyond 'cheap fleet'.  It's amazing, but I think I still see more old Louisville's on the road than HN80's these days.  i wonder whatever happened to that HN80 'long nose' prototype Ford built.  

Yeah, "Together We Will Run The Country"..........

[TS7]

The reason you see a lot of L-Series still on the road today is that it was simple, well built truck with a lot of common parts across the whole lineup. For the most part vender drivetrain too. In 1996 I think Ford was selling 2000+ class 7 trucks a month. In 1997 when they gave away the HN80, they should have kept the L-7000 (old Louisville) around. They could have found some room at KTP. With updates, I think they could be selling 1000+ a month L-7000's class 7 today, F-650 for class 6. Roadway wasn't Navistar the leader in class 7 20+ years ago? What happened to the DT466? The people running Navistar, have run it into the ground.   

[Bullheaded]

10 hours ago, TS7 said:

" Doubts about the quality of Navistar's products" says it all. Get real, there done. 

Well, they failed with some of their engines, but go try a new HX. Nicest built, best riding, quietest truck out there. And my Paystar and 9900i were absolutely bulletproof. I would put them in a dead even tie with my old R model as the best trucks I have ever been in. Went to work every day, and never failed.

[Bullheaded]

And the DT466 was an awesome motor too. There's a reason it (and a John Deere) are about the only two engine blocks still used in 4000 horsepower sled  pulling tractors.

[TS7]

Bullheaded down here Navistar has become rare in the construction market. I know people that were burned by Navistar built Cat trucks and Navistar trucks in general.   

[kscarbel2]

1 hour ago, TS7 said:

Bullheaded down here Navistar has become rare in the construction market. I know people that were burned by Navistar built Cat trucks and Navistar trucks in general.   

You're right of course, but in year 2020 that's all in the distant past. The HX is an impressive option today in vocational.

[Bullheaded]

Yes, I see both sides here. They really did mortally wound their reputation. And the Cat truck was also a huge disaster. But they seem to have been really working on making a better product over the last few years.

And I also agree, it will be a hard road to win customers back. We all know what it's like to get burned. You tend to walk away.

But that HX is a really good product. My my last two higher priced Star's (a 2013 and a 2020 don't compare)

 

It's really too bad the Maxxforce didn't work out. They had two of the best engine blocks around (MAN and the C15 Cat) with bad fuel and emission systems on them.

Think of the hero International would have been if it would have worked....to have the only on road engine with no DEF fluid.

That's why a big fleet up here bought a whole bunch of them. They were having problems with their Freightliner's DEF systems freezing on the ice roads.