Volkswagen and Navistar reach share agreement. Volkswagen has come to an agreement with American truck manufacturer Navistar. VW has agreed to purchase a 16.6% share in the Navistar business. This strategy provides Volkswagen with a quick entry into the US truck market.
This is not an easy business to penetrate, but the Navistar deal will assist Volkswagen achieve this. In return, Navistar gets access to Volkswagen’s expertise in engine technology for its vehicles. It appears to be a deal which is of significant benefit to both companies.
Volkswagen has agreed to pay $15.76 per new company share. There will be 16.2 new company shares, resulting in a cost to Volkswagen of $255 million. The share price paid was 12% over Friday’s closing price. The deal also involves a procurement joint venture. This will assist Navistar in reaching synergies of $500 million over the next 5 years.
One of the reasons for the deal was that US regulators had announced new standards for greenhouse gas emissions. Environmental standards for such emissions have been cut by up to 25% for medium and heavy duty trucks. Businesses have until 2017 to meet the new standards. Volkswagen can help Navistar achieve this figure.
There are other benefits of the merger however. By working together, Volkswagen and Navistar can use the technical expertise of each to tackle any existing and future technological issues. They both expect to be able to offer their customers more options in available technology than if they were competing separately in the truck business in the US.
As environmental and other regulations become more strict, we can expect more mergers between businesses in the same industry that complement each other’s technology and/or products. Some are looking ahead and using this as a future investment criterion. Expect to hear more from Volkswagen and Navistar about this.
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