FCA To Merge With PSA

RobertRyan wrote:

RobertRyan wrote:

MUNICH (Reuters) - Volkswagen (VOWG_p.DE) is open to buying a majority stake in U.S. truckmaker Navistar “at some point,” it said on Monday, as the German automaker prepares its trucks business for a possible stock market listing that could help raise funds to expand.Volkswagen Truck & Bus acquired a 16.9 percent stake in Navistar International Corp (NAV.N) in 2016 and last week joined forces with Toyota’s (7203.T) Hino Motors as it strives to compete more effectively with global truck market leaders Daimler (DAIGn.DE) and Volvo (VOLVb.ST).

Volkswagen (VW) plans to convert its trucks division, which includes the Scania and MAN brands and a Brazil-based commercial vehicles business, into a public limited company as a prelude to a potential stock market listing.

“(Taking over Navistar) would make sense at some point,” Matthias Gruendler, the finance chief of VW truck and bus, told reporters on Monday.

A takeover would require between 3 and 4 billion in extra costs and could be shouldered without proceeds from a possible initial public offering (IPO), he said, without specifying whether he was talking about euros or dollars.

The spinoff of TRATON will, in theory, allow Volkswagen to see earnings multiple expansion and increased valuation on at least a portion of its business.

Volkswagen has long been rumored to have interest in acquiring medium- and heavy-duty truck manufacturer Navistar in which it already holds a 16.8 percent interest (16.6 million shares). The two currently have a “strategic alliance” that provides joint collaboration on engine technology, the sale of engines and contract manufacturing.

Volkswagen’s management has brushed back Navistar acquisition talk in recent weeks, but in 2018 TRATON Chief Executive Officer Andreas Renschler said that an acquisition of Navistar would be a “good idea.”

TRATON reported revenue of 25.9 billion euros in 2018 with truck sales of 233,000 units and is viewed as the market leader in its core markets of Europe and South America. Navistar generated $10.3 billion in revenue during its 2018 fiscal year ending October 2018, representing roughly 14 percent of the U.S. market share. There is very little overlap in geographies currently as North America accounts for only 1.5 percent of TRATON’s vehicle deliveries. Additionally, Navistar’s $3.3 billion market cap is roughly one-quarter of TRATON’s value.

Just because he says he wants to do it, does not mean he can at this time or should. The US heavy duty truck market is very cyclical meaning that it generally has 2-5 good years with lots of truck orders followed by 1-3 bad years. We are just coming our of a 5 year boom meaning Navistar's shares are high. This means their value is high which means it will cost more for VW to purchase them.

If VW were smart, they would wait at least a few years for the Navistar value to drop and then acquire more assets into Navistar. It would probably take a few more cycles for it to be a full acquisition. This is what VW did on the last bust in the heavy duty market when they bought around 16% of the shares of Navistar several years ago. This is why we hear that VW has no current plans to acquire Navistar and will likely wait a few years when their value goes down.

It would be foolish of VW or any investor to purchase when values are high and are historically at their peak when they can wait just a few years for the value to drop.