According to a trucking industry news service, Paccar is in preliminary discussions to acquire Navistar International’s medium – and heavy – duty truck operations, which could end up strengthening its position as one of the world’s largest truck makers.
Paccar, which had $8.6 billion in sales in 1999, has not taken the more serious step of due diligence, and has not made an offer. It has been reported that officials with Chicago-based Navistar initially approached Paccar to start the talks.
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Paccar is known on the road through its truck brands — Peterbilt, Kenworth, DAF and Foden. It is known on Wall Street for its 60-year streak of profitability.
If Paccar were to buy Navistar, it would become the top company in heavy trucks in North America, with a 38 percent market share. It would also rival DaimlerChrysler for worldwide market share supremacy. Combining the companies would give Paccar a significant boost in the medium-duty truck business, and this would instill more fiscal discipline into Navistar.
Both companies have suffered from a drop in truck orders in recent months, which has pushed down profits and stock prices. Paccar, which still turned a $131 million second-quarter profit on $2 billion in sales largely on the strength of its European business, has made deep cuts in North America. This week, it laid off 60 managers and professional workers and 370 of its 1,150 assembly line workers in Madison, Tenn.
This type of climate within the industry can only encourage consolidation. On a valuation basis, most firms in the trucking industry are quite cheap, so it is a good time for Paccar to make this acquisition. Paccar also have high credit in there favour, with $935 million available.
