Navistar International Corporation has formed a wide-ranging strategic alliance with Volkswagen Truck & Bus, which includes an equity investment in Navistar by Volkswagen Truck & Bus and framework agreements for strategic technology and supply collaboration and a procurement joint venture.
The agreements will enable Navistar to offer customers expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus’s products and components, while better optimizing its product development spend. The alliance will also strengthen Navistar’s liquidity position. In addition, the procurement joint venture is expected to leverage the purchasing power of Volkswagen Truck & Bus’s three major truck brands, Scania, MAN and Volkswagen Caminhões e Ônibus, in addition to Navistar’s own International® and IC Bus brands, providing Navistar with enhanced global scale.
Navistar expects significant synergies from both the strategic technology collaboration and the procurement joint venture. The company expects the alliance to be accretive beginning in the first year, and for cumulative synergies for Navistar to ramp up to at least $500 million over the first 5 years. By year 5, it expects the alliance will generate annual synergies of at least $200 million for Navistar. This annual run rate is expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.
As part of the alliance, Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6 percent of post-transaction undiluted common stock (or 19.9 percent of pre-transaction outstanding common stock). Navistar will receive $256 million from the equity investment to be used for general corporate purposes.
To underscore the long term nature of the alliance, Volkswagen Truck & Bus has agreed to hold these shares for a minimum of three years.
The procurement joint venture will help source parts for both companies, providing Navistar and Volkswagen Truck & Bus with greater scale and competitiveness. It will also provide additional opportunities for Navistar suppliers to gain access to potential global sourcing opportunities, and create improved pricing for end-customers.
The strategic alliance will receive oversight from an alliance board, comprising top-level executives from both parties, which will align the product development and procurement processes between the companies.
Published in the October 2016 Edition of American Recycler News
