TRW advertising seen at a media event in Germany

TRW advertising seen at a media event in Germany

ZF Friedrichshafen is said to be in advanced talks to acquire TRW Automotive Holdings in a deal estimated at nearly US$12bn.

Reuters reported sources telling it ZF is lining up roughly EUR10bn ($13.4bn) in debt financing, and is prepared to pay around US$105 per TRW share, just above its current stock price and valuing the company at close to US$12bn.

Reuters noted that such a deal would represent a multiple of about 7.5 times TRW's estimated earnings before interest, tax, depreciation and amortisation in 2014, making it one of the most expensive takeovers in the automotive supply sector.

Sources said that the two sides have yet to negotiate a final price and other terms but are hoping to reach an agreement in a matter of weeks although there is no guarantee one will be struck.

If the deal comes off, it would create one of the world's largest automotive suppliers with combined annual revenue exceeding US$40bn. ZF supplies steering systems and powertrains while TRW’s expertise is in safety products including brakes and air bags.

Neither company commented on the story although it is understood that Citigroup and Deutsche Bank are advising ZF and providing a bridge loan facility.

TRW said earlier this month it had hired Goldman Sachs Group after receiving a preliminary takeover approach. ZF later confirmed it was in early stage buyout discussions.

TRW gets around 40% of its revenue from Europe where it counts Volkswagen as its largest customer. ZF, which is privately owned, generates about half of its revenue in Europe and posted 2013 revenue of EUR16.84bn (US$22.6bn).

The proposed combination would likely face regulatory scrutiny and is expected to require some divestitures in areas such as steering components, according to one of the people familiar with the matter.

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