Navistar International said it had formed a “wide-ranging strategic alliance” with Volkswagen Truck & Bus which includes a VW equity investment in the US based truck maker, framework agreements for strategic technology and supply collaboration plus a procurement joint venture.
The agreements expected to be entered into “will enable Navistar to offer customers expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus’s products and components, while better optimising its product development spend,” a statement said, adding the alliance would also strengthen Navistar’s liquidity.
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The procurement JV is expected to leverage the purchasing power of Volkswagen Truck & Bus’s three major truck brands, Scania, MAN and Volkswagen Caminhões e Ônibus, in addition to Navistar’s own International and IC Bus brands, providing Navistar with enhanced global scale.
Navistar said expected “significant synergies” from both the strategic technology collaboration and the procurement joint venture. The company expects the alliance to be accretive beginning in the first year, and for cumulative synergies for Navistar to ramp up to at least US$500m over the first five years. By year five, it expects the alliance will generate annual synergies of at least $200m for Navistar. This annual run rate is expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.
“We are very pleased to partner with a global leader who shares our view of the world, in an alliance that will deliver multiple benefits and is consistent with our open-integration strategy,” said Troy Clarke, president and CEO, Navistar. “Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale. Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies and enabling Navistar to deliver enhanced uptime. Volkswagen Truck & Bus’s equity investment will strengthen our liquidity position and expand our financial flexibility, while aligning us with a valuable strategic partner.”
“Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context,” said Andreas Renschler, CEO of Volkswagen Truck & Bus and Volkswagen AG’s head of commercial vehicles. “We are now taking the next step on our way to becoming a global champion in the commercial vehicles industry. The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides.”
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By GlobalDataNavistar said it would remain “a leading, independent truck, bus and engine company, focused on providing best-in-class products and related services to its customers globally and delivering value for its shareholders”.
“We expect this alliance will create significant global scale, yielding considerable cost savings for both companies,” said CFO Walter Borst. “We believe working collaboratively, the two companies can optimise the capital and engineering expenditures associated with next-generation truck and bus engine development while providing both Navistar and Volkswagen Truck & Bus with opportunities for substantial procurement savings. This alliance marks another step in Navistar’s journey to be a stronger, more profitable company.”
Equity investment
As part of the alliance, Volkswagen Truck & Bus will acquire 16.2m newly issued shares in Navistar, representing 16.6% of post-transaction stock for which t will pay $15.76 per share or a 25% premium over Navistar’s 90-day volume weighted average price as of 31 August, 2016, or 12% over Navistar’s closing price on September 2, 2016. Navistar will receive $256m from the equity investment to be used for general corporate purposes.
Volkswagen Truck & Bus has agreed to hold these shares for a minimum of three years and will have the right to appoint two directors to Navistar’s board.
Procurement joint venture
The procurement JV will help source parts for both companies, providing greater scale and competitiveness. It will also provide additional opportunities for Navistar suppliers to gain access to potential global sourcing opportunities, and create improved pricing for end-customers.
Technology sharing
The strategic technology and supply partnership builds on Navistar’s open integration strategy of partnering with the best global companies in the industry to integrate cutting-edge technology. It is expected the partnership will focus on powertrain technology solutions, as well as explore collaboration in all aspects of commercial vehicle development, including advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components. This enhanced collaboration will enable the alliance to share the overall costs associated with future vehicle development.
Navistar products will benefit from Volkswagen Truck & Bus components and technology through licensing and supply agreements entered into under the framework agreement for strategic technology and supply collaboration which, longer term, will generate increased parts sales.
Governance
The strategic alliance will receive oversight from an alliance board, comprising top executives from both parties which will align the product development and procurement processes between the companies.
The closing of the share purchase agreement implementing the strategic alliance is subject to regulatory approvals, finalisation of the agreements governing the procurement joint venture and the first contract under the technology and supply framework agreement and other customary closing conditions.
