* Volkswagen to buy 16.2 mln new shares in Navistar
* To pay $15.76 per share, 12 pct premium
* Deal includes procurement JV
* VW could increase Navistar stake at later point
* Navistar sees at least $500 mln in savings over first 5
(Recasts first paragraph; adds company comments, analyst
comments; updates stock price)
By Nick Carey and Edward Taylor
CHICAGO/FRANKFURT, Sept 6 Volkswagen
has agreed an engine technology and purchasing alliance with
truckmaker Navistar and will buy a stake in the U.S.
firm, giving the German company a long-sought foothold in North
America and providing cash-strapped Navistar a vital lifeline.
Analysts said they believe Volkswagen's $256 million
purchase of the 16.6 percent stake is a first step toward buying
all of Navistar, whose shares shot up more than 40 percent after
the announcement on Tuesday. Volkswagen's shares were flat.
The companies said the deal will help both sides cut costs
and provide a source of new engines for Navistar, which has
sought a partner ever since its heavy-duty diesel truck engine
failed to win approval from U.S. regulators in 2010.
A strong partner will also help shift the dynamics of the
North American truck market, where Navistar ceded market share
to the truck unit of Daimler AG, Volvo AB
and PACCAR Inc.
Volkswagen has made no secret of its desire to enter the
North American market and several analysts have pointed to
Navistar, with its large dealer network, as a natural target.
U.S. regulators last month announced new environmental
standards designed to cut greenhouse gas emissions from medium-
and heavy-duty trucks by up to 25 percent by 2027, adding
pressure on Lisle, Illinois-based Navistar to seek a technology
Longbow Research analyst Neil Frohnapple said the deal had
come earlier than he expected as the emissions standards will
not start to take effect until 2018, but that cash-strapped
Navistar would have struggled to meet the rules.
"Given Navistar's financial position, they need to team up
with someone or exit the engine business," Frohnapple said.
Volkswagen's next-generation engine for MAN and
Scania trucks will be adapted to suit Navistar's U.S.
trucks, Volkswagen Trucks Chief Executive Andreas Renschler
said. Volkswagen's truck unit has not been involved in the
emissions scandal that has hurt its car business.
Navistar CEO Troy Clarke told Reuters that having
Volkswagen's technological input should assuage any customer
fears over whether the U.S. truck company could meet future U.S.
"If your concern was that Navistar was not a company that
can do that, that concern should go away," he said.
Clarke said that no agreement has been reached on whether
Volkswagen engines will be made in Navistar's North American
plants, but he said it is an option.
'DIP A TOE IN THE WATER'
Activist investor Carl Icahn holds 19.94 percent in
Navistar, followed closely by MHR Fund Management LLC, founded
by Mark Rachesky, a former associate of Icahn, which owns 19.88
percent of the company.
Navistar CEO Clarke said the deal had the unanimous approval
of its board of directors. MHR and Icahn control two seats each
on the board.
The alliance, first reported by Reuters on Monday, involves
the creation of a joint venture for procurement, which Navistar
said would help it realize savings of at least $500 million over
the first five years.
Navistar said those savings will come from collaboration on
procurement and technology, rather than job cuts.
Brian Sponheimer, analyst at Gabelli & Company, said the
deal should give Navistar's dealers an immediate marketing boost
because it removes uncertainty over the truck maker's future.
"The power of that consumer confidence boost should not be
underestimated," he said.
Volkswagen will pay $15.76 a share for 16.2 million new
Navistar shares, a 12 percent premium to Navistar's closing
price on Sept. 2, the two groups said.
Volkswagen's Renschler said "all options are open" when
asked on a conference call if the deal could pave the way for a
full merger with Navistar.
Stephen Volkmann, analyst at Jefferies, said that by buying
a smaller stake in Navistar, Volkswagen "perhaps wants to dip a
toe in the water rather than get completely wet," but he expects
the German automaker to eventually buy the rest of the truck
Analysts said the pact could also improve VW's chances of
eventually spinning off its trucks arm.
"A more global company with exposure to the profitable North
American market will make for a better story should VW look to
IPO its trucks business in the future," Arndt Ellinghorst,
analyst at Evercore ISI said in a note.
VW shares closed up 0.2 percent at 125.05 euros a share.
Navistar shares were up 42.4 percent at $20.03 a share.
(Additional reporting by Joe White, Jan Schwartz and Maria
Sheahan; Editing by Mark Potter, Greg Mahlich and Meredith