Cars and Drivers

Why Volkswagen May Want to Acquire Navistar

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While the transition period from one chief executive officer to another has barely gotten started at Volkswagen, some big changes may already be afoot. VW’s commercial-vehicles unit, Volkswagen Truck & Bus, is looking at the possibility of buying more shares in U.S. truck maker Navistar International Corp. (NYSE: NAV) or even acquiring the whole company outright.

At Friday’s closing price of $37.06, Navistar was valued at around $3.7 billion. Shares were trading close to $41 Monday morning, pushing the company’s value to more than $3.9 billion.

VW acquired about 17% of Navistar in September 2016 and we noted at the time that what the two companies had in common were failures in developing technology to clean up diesel engine emissions.

In addition to VW, the other big stakeholder in Navistar is Carl Icahn, who also owns approximately 17% of the company.

In 2012, Navistar finally gave up on coming up with its own clean-diesel technology and fired the CEO who had led the company down that path for nearly a decade. VW’s troubles with its diesel engines were far worse, of course, magnified by the number of vehicles sold and the lies the company told to sell those millions of cars.

Truck & Bus CEO Andreas Renschler pointed to its Global Champion’s growth path, which the company calls “Next Level”:

On the next stage we’ll speed up. That’s why we started Next Level. This comprehensive project will accelerate the transformation of our company from its start-up phase of the past years to a true Global Champion and will quickly make it ready for the capital markets.

Translation: an initial public offering is on VW Truck & Bus’s agenda. How might Navistar fit into those plans? For one, it is already listed on the NYSE and that eases a listing in New York if VW chooses to go that way. For another, it puts a Truck & Bus stake in the ground in one of its key markets, something it already has achieved in Europe and Brazil.

If VW wants to raise its stake in Navistar above its current level, it has to make an offer for the whole company, and that means making Icahn an offer he can’t refuse.

Investors like the interest from VW. Navistar stock traded up about 8.7% midday Monday, at $40.29 in a 52-week range of $23.02 to $47.73. The 12-month consensus price target on the stock is $43.77. The share price of Navistar has more than doubled since VW acquired its stake in September 2016.

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