Traton to acquire Navistar for $3.7B, entering the North American truck market

Dive Brief:

Traton, Volkswagen's Europe-based truck maker, said Friday it will acquire all Navistar shares. Traton already holds a 16.8% position in the U.S. OEM and will pay $44.50 per share for the rest.
Navistar said it has gained the approval of its two largest shareholders to move forward with the deal. The next step is for Navistar's board to approve the offer. The deal has a value of $3.7 billion, according to Jeff Kauffman, managing director of equity research for Loop Capital Markets and a Navistar analyst.
Navistar's North American Class 8 market share has declined over the last decade, reaching 11% in March 2020. With the Traton deal, Navistar aims to grow to past highs it held in the truck market.

Dive Insight:

Traton has had its sights on the third-largest truck OEM in North America for a while, having taken a minority stake in Navistar in September 2016. Now Traton sees a growing North American sales market supported by a surging freight economy, said Nikhil Sathe, managing director of Logisyn Advisors, which advises transport and logistics companies on M&A.

The acquisition is also an opportunity for Navistar to reacquire the market share it lost after problems with its MaxxForce engines. The issues came to light after Milan Supply Chain Solutions sued Navistar for its faulty engines in models sold between 2011 and 2013. The problems with those models and their exhaust gas recirculation systems led to a series of settlements in federal courts.

And the MaxxForce failure hurt. Navistar's North American Class 8 market share went from 25.1% in December 2010 to a range of 14% to 15% currently, Kauffman said.

Traton believes it can boost Navistar while getting into the North American market it has long eyed, he said.

"It makes strategic sense to [Traton]," said Kauffman. "What Traton was missing was that North American market."

European players dominate the North American market. Daimler Trucks North America, the Oregon-based OEM, has the largest market share. It's owned by Daimler AG in Germany. Volvo bought Mack Trucks in 2000, and the two truck OEMs now work out of a North Carolina joint headquarters. Paccar, the second-largest Class 8 OEM, is the exception.

But why would Traton want to expand into North America and help Navistar compete with such brands as Freightliner, Kenworth, Mack and Volvo? Because there is market share to gain, Sathe said.

Despite the woes caused earlier in the year by the COVID-19 pandemic, Class 8 truck sales came in above 19,000 in September, Wards Intelligence said, and orders rebounded from lows in April to surpass 32,000 in September, according to FTR.

Sathe said the North American freight market is poised for long-term growth. It means fleets should expect more M&A activity, especially in carriers and 3PLs, which Sathe said is a fragmented market ripe for consolidation. The snapping up of trucking and transport companies could last as long as the freight boom, which Sathe said will likely endure for more than a year.

"We believe this trend [of M&A] will not slow down in the future," said Sathe. "This is a time for trucking companies to make money ... [and] it's affecting strategic decisions."