COMMENT: Has ZF set the M&A hare running with TRW?
Any ZF takeover of TRW could create a new global supplier powerhouse
Is ZF Friedrichshafen's mooted takeover of TRW Automotive a ploy to smooth the peaks and troughs of any future recession?
Widely thought to be valued at anywhere between US$11bn and $12bn, any acquisition would create a new behemoth supplier and catapult ZF into the major league of global component producers.
Both parties are being predictably coy surrounding any potential takeover that seems to have come out of the blue for many analysts, although there is nothing shy concerning TRW's share price which has motored in the last few days.
"TRW Automotive Holdings confirmed it received a preliminary, non-binding proposal to acquire the company," was the US supplier's bald statement from Michigan, which added: "The company has not made a decision to pursue any specific strategic transaction or any other strategic alternative and there is no set timetable for the strategic review process.
"There can be no assurance the process described above will result in the consummation of any transaction or any changes to the company's current business plan."
Speculation has been rife for some time an improving global economy, specifically rooted in a US-led economic recovery which has seen the automotive sector claw back much of the catastrophic amount of ground lost during the downturn, could trigger a raft of M&A activity.
ZF may have just fired the starting gun for a burst of auto supplier activity, with one eye on a rapidly evolving passenger vehicle sector, which will see alternative powertrains such as pure electric and hybrid act in tandem with a bewilderingly increasing range of driver assistance systems that are already radicalising technical options.
On the face of it, ZF and TRW are much of the same size at US$16.8bn and US$17.4bn turnover respectively, but the Germany component manufacturer is clearly emerging from a Europe stricken by the deepest recession in many people's living memory and recovering at a far slower rate than the powerhouse of the States.
With a 50% dependency on sales in Europe any takeover of TRW could spread ZF's risk of future downturns.
At this year's Society of Automotive Analysts in Detroit, the thinking was the world was now looking at recessions every seven years and a merger could help to flatten some of the roller-coaster nature of those dips.
ZF's forte lies in transmissions and steering systems as well axles and chassis components, while TRW has some of the flavour of the month expertise with its camera and radar systems, as well as electronic control units.
Emerging markets -particularly China but the BRICs in general - as well as improving mature ones - may be tempting arenas in which to supply myriad driver assistance systems and coupled with a push to non-traditional powertains - could be where the sunlit uplands lay for ZF.
TRW's share price is a fraction less than US$102 today (15 July) and rising sharply by all accounts as mounting speculation of a takeover gathers momentum and fuels stock market interest.
It won't be all plain sailing of course and there will be many employees on both sides of the Atlantic anxiously scouring any information sources to glean what this mega-merger would mean for them.
ZF employs around 73,000 staff and TRW, 65,000. Any bonding would naturally generate synergy opportunities, steering?, which would spook unions particularly in the Works Councils of Germany, but maybe also in the UAW whose new leadership through the guise of veteran president Dennis Williams may view the proposed merger as a first real test of its labour credentials.
There's clearly another fly in the ointment and that could be reaction of competition authorities in Washington and Brussels.
It may be ZF will have to accept a level of divestment and spin-offs to satisfy regulatory authorities, particularly in Europe, anxious not to cast possibly thousands more on to the swollen dole queues of the old world, but the supplier will obviously have run the numbers and still emerged with a 'yes' from the Board.
This divestment would create further opportunities, but even if this massive deal founders against the regulatory rocks, the very fact it has been run up the flagpole could provide the trigger for a new round of activity as Europe in particular, emerges from its long economic hibernation.
There's an unusual bit of radio silence surrounding this one, which could indicate something is indeed afoot.
I've contacted several analysts who have politely declined to comment on the situation, while, perhaps more obviously, both companies concerned have issued their standard responses.
Just where would ZF raise the US$11bn or US$12bn is an intriguing question on which surely more light will be shed in the coming days as this rapidly evolving - either yay or nay - situation becomes clearer.
All the German supplier would say is: "It is in the preliminary stage of discussing a possible acquisition for American automotive supplier, TRW."
Even if it doesn't secure TRW, ZF may have set the hare running.