September 15, 2014 / 1:50 PM / 3 years ago

REFILE-UPDATE 2-Germany's ZF agrees $13.5 bln TRW buy to position for self-drive cars growth

(Corrects formatting of bullet points at top of story)

* All-cash deal to create group with sales of over $40 bln

* ZF CEO says transaction is technology driven

* ZF offers $105.60 in cash for each TRW share

* Deal is 16 pct premium above TRW close on July 9

* Price is 7.6 times TRW’s EBITDA in past year (Adds ZF CEO, analyst comments, writes through)

By Soyoung Kim, Edward Taylor and Arno Schuetze

NEW YORK/FRANKFURT, Sept 15 (Reuters) - German car parts maker ZF Friedrichshafen agreed to buy U.S.-based TRW Automotive Holdings Corp for $13.5 billion including debt, creating a major global supplier ready for an age of self-driving cars.

The all-cash transaction will create a player with combined annual sales of more than $40 billion, more than doubling ZF’s sales in two of the world’s largest car markets: China and the United States.

It will marry ZF, a major provider of steering systems and drivetrains, with a leading maker of automotive safety products such as brakes and air bags.

ZF, which already helps carmakers develop hybrid-powered transmissions, had been on the lookout for a strategic partner after an analysis showed semi-autonomous driving functions and vehicle connectivity will develop into important business areas.

“The major motivation for this transaction is technology driven, in the field of electromobility and in the field of autonomous driving,” ZF Chief Executive Stefan Sommer said on a conference call on Monday.

In a note, Morgan Stanley analyst Ravi Shanker said TRW’s active safety, passive safety and steering technologies, together with its software capability, would allow it to control the key elements of an autonomous car.

“Together with ZF’s portfolio of mechanical solutions for chassis, transmission and drivetrain control, there would be few parts of an autonomous car - mechanical or electronic - that a ZF+TRW combination could not potentially dominate,” the note said.

ZF is offering $105.60 in cash for each TRW share, or nearly $12 billion based on shares outstanding. That is a premium of 16 percent over the U.S. company’s closing price on July 9, before ZF’s interest emerged.

The price represents a multiple of 7.6 times TRW’s earnings before interest, tax, depreciation and amortization for the year through June 2014, making it one of the most expensive takeovers in the auto parts sector.

TRW, based in Livonia, Michigan, is a global maker of air bags, electronics and braking and steering equipment. It sells to nearly all major automakers, including Ford Motor Co and General Motors Co.

CREDIT RATING

The company, which had sales of $17.43 billion last year, counts Volkswagen AG as its largest customer and derives about 40 percent of its revenue from Europe.

ZF Friedrichshafen supplies chassis components to companies including Audi AG and BMW, and generates about half its revenue which totaled 16.84 billion euros ($21.7 billion) in 2013 in Europe.

For ZF, controlled by the Zeppelin Foundation of Friedrichshafen, a small city on the shores of Lake Constance, it marks a leap into the world of capital markets. It will seek a credit rating so it can issue bonds to finance the deal.

ZF earlier on Monday announced the sale of its steering unit to Robert Bosch GmbH, a move to clear antitrust hurdles as part of a broader combination with TRW.

Reuters first reported on July 30 that ZF was in advanced talks to buy TRW for around $105 per share, but wanted to have a plan to divest its steering business before finalizing the deal.

The transaction is subject to antitrust and U.S. foreign investment clearance and is expected to close in the first half of 2015, ZF said.

“ZF started to create a long-term strategy focused on the year 2025. We have seen we need certain growth to be a tier one supplier,” Sommer said, adding that ZF would consider additional deals in future if they made strategic sense.

The combination of ZF and TRW creates a new platform for serving the world’s largest auto makers, Sommer said, adding that ZF and TRW’s portfolios were complementary.

Buying TRW is an attempt by ZF to increase its exposure to sensors and electronic components. Stricter safety and anti-pollution rules have forced carmakers to install more complex onboard electronics that help to make acceleration, braking and engine management systems more intelligent.

Goldman Sachs Group acted as financial adviser to TRW and Simpson Thacher & Bartlett LLP and Gleiss Lutz were legal advisers. Citigroup Inc and Deutsche Bank advised ZF, while Sullivan & Cromwell acted as legal adviser.

ZF said it had received a bridge loan from Citigroup and Deutsche Bank. ZF could issue a bond in the next six months to help finance the deal. (Editing by Matthew Lewis and David Holmes)

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