Volkswagen AG’s heavy truck business, Traton SE, has increased its bid to acquire all shares in Navistar International Corp., offering to buy the rest of the truck manufacturer for $3.6 billion in cash.
Traton, which already holds a share of 16.8%, has offered to purchase the stock it doesn’t yet own for $43 per share, an increase from its January offer of $35 per Navistar share.
Volkswagen AG also confirmed its general intention to provide funds for the financing of an increased offer. If the proposal is accepted, Traton would become the sole owner of Navistar. The proposal is subject to Traton and Navistar agreeing on a merger agreement, the conduct of satisfactory due diligence and the approval of the merger agreement by the boards of Traton and Volkswagen AG as well as the Board of Directors and the shareholders’ meeting of Navistar.
On Sept. 10, Navistar confirmed it had received Traton’s revised proposal. Navistar's Board of Directors and management team are committed to exploring all avenues to maximize value, the company said in a statement.
“Consistent with its fiduciary duties, the board will carefully review the revised proposal from Traton in consultation with its advisors to determine the course of action that it believes is in the best interests of the company and its stakeholders,” Navistar stated. “Navistar shareholders do not need to take any action at this time, and there is no assurance that any transaction with Traton will occur or be consummated. Navistar does not intend to make any additional comments regarding the proposal unless and until it is appropriate to do so, or a formal agreement has been reached.”
JP Morgan and PJT Partners are acting as Navistar's financial advisors. Sullivan & Cromwell LLP is providing legal counsel.
On Sept. 9, Navistar announced a third-quarter 2020 net loss of $37 million, or $0.37 per diluted share, compared to third quarter 2019 net income of $156 million, or $1.56 per diluted share.
Revenues in the quarter were $1.7 billion, down 45% from Q3 2019, and core charge outs (Class 6 to 8 trucks and buses in the U.S. and Canada) were down 53%. The decrease was primarily driven by the impact of COVID-19, as well as prior year comparable quarter results that were near the peak of the prior industry cycle, the company stated in its Q3 earnings report.
During the quarter, Navistar named Persio Lisboa president and chief executive officer, and Troy Clarke to the new role of executive chairman. The company has also made several leadership changes aimed at accelerating the pace of its Navistar 4.0 progress with a focus on opportunities in advanced technologies.
Earlier this year, Navistar reported that it took several actions to conserve cash and bolster its liquidity in response to the COVID-19 pandemic. “These actions have been successful, as the company ended the third quarter with $1.6 billion of manufacturing cash, allowing it to cease its employee salary deferral program on Sept. 1, several months earlier than initially planned,” Navistar reported.
Additionally, Navistar reported that actions taken due to the pandemic drove the company's selling, general and administrative expenses (SG&A) down 29% year-over-year, after adjusting for a one-time gain in the prior year. Using wisdom gained during COVID-19, Navistar said it is pursuing additional sustainable cost savings opportunities.
"We are targeting SG&A costs between 7% to 9% of revenues," said Walter Borst, chief financial officer of Navistar. "Our focus has moved from temporary cash conservation actions to sustainable cost savings that support our Navistar 4.0 goals and better position us for profitability at all points in the cycle."
Navistar is also redirecting more resources to advanced technologies, which led to several announcements during Q3.
In autonomous, the company announced a strategic partnership with TuSimple to co-develop SAE Level 4 self-driving trucks targeted for production by 2024. The partnership also includes Navistar taking a minority stake in TuSimple.
In connectivity, Navistar announced strategic partnerships with fleet management solutions providers Samsara and Geotab to allow International customers to seamlessly add their choice of fleet management solutions without the installation of additional vehicle hardware.
In electric, the company's NEXT eMobility Solutions business unit signed a master services agreement with In-Charge Energy to provide charging infrastructure and consulting services to electric vehicle customers.
Navistar also announced it has made progress on the construction of its production facility in San Antonio, which is scheduled to open in spring 2022. The facility will be capable of building both diesel and fully electric vehicles, and the first vehicle off the line will be an electric truck, entirely built on the main assembly line.
"As a result of the pandemic, we had the opportunity to revisit our investment portfolio and retime noncritical programs, and cancel others," said Lisboa in a statement. "By streamlining our investments, we were able to free up significant capacity, which is being redeployed into advanced technology programs and strategic partnerships that accelerate our pace of progress."
