Navistar Announces Collaboration with Volkswagen Truck & Bus

Navistar International Corp. has announced that the company has finalized a strategic alliance with Volkswagen Truck & Bus, with Volkswagen Truck & Bus taking a 16.6 per cent stake in Navistar. The two companies have also finalized framework agreements for collaborations when it comes to supply arrangements and strategic technology in addition to setting up a joint venture for procurement.

As an outcome of this alliance, Navistar will be able to offer high end products and services to its customers through technological collaboration with Volkswagen. The company will also be able to optimize its investment in product development and will take up licensing and supply of products and components from Volkswagen Truck & Bus. Navistar will also be able to extend its global footprint thanks to the procurement joint venture. The joint venture  will leverage the purchasing power of Scania, MAN and Volkswagen Caminhões e Ônibus, the three brands owned by Volkswagen Truck & Bus in addition to the company’s own International and IC Bus brands.

Navistar expects to significantly strengthen its liquidity position as an outcome of the deal as large scale synergies are expected both from the strategic technology collaboration and the procurement joint venture. Over the first five years of the collaboration, these are expected to add up to at least USD 500 million and from then on to generate annual synergies of at least USD 200 million. This is expected to grow even further in the long run.

Commenting on the deal, Troy Clarke, president and CEO, Navistar said that he was very pleased to partner with a global leader in an alliance that is consistent with the company’s open-integration strategy and is expected to deliver multiple benefits.

He added that while the alliance is expected to benefit the purchasing operations in the near term through global scope and scale, in the long run, it will expand the technology options the company is able to offer to its customers by leveraging the best of both companies. The equity investment from Volkswagen Truck & Bus will fortify Navistar’s liquidity position and expand the company’s financial flexibility.

Andreas Renschler, CEO of Volkswagen Truck & Bus and member of the board of management of Volkswagen AG responsible for commercial vehicles said, “Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context. We are now taking the next step on our way to becoming a global champion in the commercial vehicles industry. The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides.”

Navistar will continue to function as an independent company. From the financial perspective, Walter Borst, executive vice president and chief financial officer, Navistar said that he expects this alliance to create significant global scale, helping both companies to make considerable cost savings. Through working collaboratively, they will both be able to optimize the capital and engineering expenditures associated with development of next-generation truck and bus engines and make savings when it comes to procurement.

Equity Investment

Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, equivalent to 16.6 percent of the post-transaction undiluted common stock  by paying USD15.76 per share. Navistar will be able to get USD256 million from the equity investment to be used for general corporate purposes. Volkswagen Truck & Bus has agreed that it will hold these shares for a minimum period of three years to highlight the long-term nature of the deal Volkswagen Truck & Bus will have the right to appoint two directors to Navistar’s board of directors.

Procurement Joint Venture

The procurement joint venture’s role will be to source parts for both companies, to give them both greater competitiveness and scale. Through the joint venture Navistar suppliers will gain access to potential global sourcing opportunities and offer retail customers better pricing.

Technology Sharing

When it comes to technology sharing, the focus will be on powertrain technology solutions, and collaboration with regard to all aspects of commercial vehicle development, including connected vehicle solutions, advanced driver assistance systems, electric vehicles, platooning and autonomous technologies, and cab and chassis components. Thus, the companies will be able to share the costs associated with the development of future vehicles.

Navistar products will benefit from Volkswagen Truck & Bus components and technology through licensing and supply agreements entered into pursuant to the framework agreement for strategic technology and supply collaboration. In the long term, this is expected to generate increased parts sales.

The closing of the strategic alliance deal will be subject to mandatory regulatory approvals.