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

Volkswagen AG`s Traton commercial truck unit said on Thursday it had offered $35 a share, or $2.9 billion (2.2 billion pounds), for the shares of U.S. truck maker Navistar International that it does not already own, and investors bet the bid will go higher. 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.

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

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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.

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 Freightliner operation Paccar Inc , which owns the Peterbilt and Kenworth brands, or Volvo Group`s 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 closed Thursday at 23.01 euros.

Commercial truck makers are under pressure from regulators to develop cleaner, electric vehicles. Navistar and Volkswagen said in 2017 they would collaborate on electric truck development.

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.