Volkswagen truck unit Traton offers $2.9 billion to take over Navistar

(Reuters) - Volkswagen AG's VOWG_p.DE Traton 8TRA.DE commercial truck unit said on Thursday it had offered $35 a share, or $2.9 billion, for the shares of U.S. truck maker Navistar International NAV.N that it does not already own, and investors bet the bid will go higher.

FILE PHOTO: A flag of Volkswagen's truck unit Traton SE is pictured at Frankfurt Stock Exchange during Traton's initial public offering (IPO) in Frankfurt, Germany, June 28, 2019. REUTERS/Ralph Orlowski

Navistar shares shot up by 50% to just over $36 a share in after-hours trading following Traton’s proposal, suggesting investors expect a potential deal could be richer than Traton’s opening offer. Traton said its offer was subject to Navistar and Traton reaching a merger agreement.

Truck makers across the globe are struggling to stem the costs of developing next generation powertrains during an industry downturn, a step which is forcing the truck makers to seek new alliances to share costs. Navistar and VW in 2017 said they would collaborate on electric truck development.

Traton shares were up 0.4% early on Friday, with Volkswagen trading 0.7% lower and underpeforming Germany’s blue-chip DAX index, which was up 0.2% at 0806 GMT.

Volkswagen has made its interest in buying the remainder of Navistar clear since acquiring an initial 16.6% stake in 2016, which has since grown to nearly 16.8%. Traton and Navistar have been collaborating on purchasing and certain technology developments, aiming to cut annual costs by $200 million a year.

Traton will have to win over Navistar’s largest shareholder, financier Carl Icahn, whose fund controls 16.9% of Navistar’s shares. Icahn and two other activist funds, Mark Rachesky’s MHR Fund Management and Gabelli Funds, together own 40% of Navistar’s shares, according to Refinitiv data.

Rachesky and another MHR executive, Raymond Miller, sit on Navistar’s board, as does a representative of Icahn’s interests. Traton Chief Executive Andreas Renschler and the German truck maker’s chief financial officer, Christian Schulz, also have seats on Navistar’s board.

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Navistar, based near Chicago, called Traton’s offer unsolicited in a statement and said its board would “carefully review and evaluate the proposal in the context of Navistar’s strategic plan for the company.”

The company has been restructuring its operations under Chairman and Chief Executive Troy Clarke since 2013, and last fall rolled out a new five-year plan called “Navistar 4.0” that aims to increase pre-tax profit margins to 12% by the end of 2024 from just under 8% for the fiscal year ended Oct. 31.

Traton includes the European commercial truck brands MAN, Scania and Volkswagen trucks, but it has lacked a strong North American footprint to compete with Daimler AG's DAIGn.DE Freightliner operation, Paccar Inc PCAR.O, which owns the Peterbilt and Kenworth brands, or Volvo Group's VOLVb.ST Mack truck business.

Volkswagen floated an 11.5% stake in Traton last June. The subsidiary’s shares have trended down from the 27 euro offering price and are trading at 23.23 euros.

The sector is also highly cyclical. Heavy-duty class 8 truck orders were down most of last year in North America compared to a year earlier, according to data from ACT Research.

Before Traton’s offer, Navistar shares had been on a downhill run, off nearly 17% since the start of 2020. The U.S. truck maker had told investors it expected overall industry demand for trucks and school buses in its core markets to fall by 20% this year.

Reporting by Joe White in Detroit; Editing by Tom Brown, Richard Pullin, Kirsten Donovan