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April 16, 2018 10:15 AM, EDT

VW Truck Division Signals Possible Takeover of Navistar

VW Building Krisztian Bocsi/Bloomberg News

Volkswagen AG’s heavy-vehicle division is open to a takeover of U.S. affiliate Navistar International Corp. as the German company seeks scale to compete with global leaders Daimler AG and Volvo AB.

Volkswagen Truck & Bus, which is changing its structure to access capital markets in about a year, might consider boosting its existing stake of just less than 17% of Navistar, though that could trigger a mandatory takeover offer, Chief Financial Officer Matthias Gruendler said April 16 at a Munich press conference. Any purchase could be funded by parent Volkswagen and not depend on an initial public offering that the truck unit is considering, he said.

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A takeover “would theoretically be possible,” Gruendler said, outlining a potential price tag of about “3 billion to 4 billion,” without specifying dollars or euros. While he declined to comment on a possible time frame for a deal, he said cooperation between the manufacturers is developing well.

Andreas Renschler, head of Volkswagen Truck & Bus, outlined global growth plans at the briefing that included adding sales in China and sharing costs across its MAN, Scania and Brazilian VW commercial-vehicle operations through joint procurement and development of parts. Volkswagen bought its holding in Lisle, Ill.-based Navistar in 2016 to gain a foothold in North America, where Daimler makes Freightliner vehicles and Volvo owns the Mack brand.

Navistar shares jumped 7.3% to $39.75 as of 8:22 a.m. in New York, before regular trading. As of April 13, the stock was down 14% in 2018, for a value of $3.7 billion. Volkswagen shares fell 1.3% to 175.02 euros in Frankfurt. That pared the stock’s gain this year to 5.2%, valuing the German company at 87 billion euros ($108 billion).

The Volkswagen truck division’s preparations for an IPO or a debt sale will take 12 months, and MAN’s Diesel & Turbo engine and Renk industrial-equipment units will be shifted from the business to parent Volkswagen, the executives said.

“This comprehensive project will accelerate the transformation of our company” into “a true global champion, and will quickly make it ready for the capital markets,” Renschler said at the press conference. He reiterated that no decision has been made on an IPO.

Bigger Payload

The revamp of the heavy-vehicle division, which Evercore ISI estimates has as much as 30 billion euros in assets, marks the most significant structural shift so far for Volkswagen as the world’s biggest carmaker retools for massive change across its industry. The Wolfsburg, Germany-based manufacturer appointed Herbert Diess, head of its namesake auto brand, CEO last week, and he pledged to accelerate decision-making across the group to adapt to rapid shifts in technology and competition.

An IPO for the truck and bus unit is just one option the division is considering to gain financing, Renschler said in an interview, adding that another would be to sell bonds.

“It’s ultimately a decision for our shareholders,” he said.

VW Chairman Hans Dieter Poetsch told reporters as April 13 the auto manufacturer will retain a controlling stake in the commercial-vehicle business and that a share sale might not happen until 2019, as it still requires final approval.