Navistar, Volkswagen announce partnership

Navistar, Volkswagen Truck and Bus announce strategic alliance

Navistar International Corp. and Volkswagen Truck and Bus have announced a wide-ranging strategic alliance, which includes Volkswagen Truck and Bus investing in Navistar stock, as well as agreements for strategic technology and supply collaboration and a procurement joint venture. Navistar will remain an independent truck, bus and engine company.

As part of the alliance, Volkswagen Truck and Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6% of post-transaction undiluted common stock (or 19.9% of pre-transaction outstanding common stock). It will pay $15.76 per share or a 25% premium over Navistar’s 90-day volume weighted average price as of Aug. 31, or 12% over Navistar’s closing price on Sept. 2. Navistar will receive $256 million from the equity investment to be used for general corporate purposes.

Volkswagen Truck and Bus has agreed to hold these shares for a minimum of three years, and will have the right to appoint two members of Navistar’s board of directors.

Navistar 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 five years. By year five, 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.

“We are very pleased to partner with a global leader who shares our view of the world, in an alliance that will deliver multiple benefits and is consistent with our open-integration strategy,” said Troy Clarke, president and chief executive officer of Navistar. “Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale. Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies and enabling Navistar to deliver enhanced uptime. Volkswagen Truck and Bus’s equity investment will strengthen our liquidity position and expand our financial flexibility, while aligning us with a valuable strategic partner.”

“Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context,” said Andreas Renschler, chief executive officer of Volkswagen Truck and Bus and member of the Board of Management of Volkswagen AG responsible for commercial vehicles. “We are now taking the next step on our way to becoming a Global Champion in the commercial vehicles industry. The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides.”

“We expect this alliance will create significant global scale, yielding considerable cost savings for both companies,” said Walter Borst, executive vice president and chief financial officer of Navistar. “We believe working collaboratively, the two companies can optimize the capital and engineering expenditures associated with next-generation truck and bus engine development, while providing both Navistar and Volkswagen Truck and Bus with opportunities for substantial procurement savings. This alliance marks another step in Navistar’s journey to be a stronger, more profitable company.”

Navistar’s Clarke said that the company will be renewing its entire portfolio between now and 2018, starting with the launch of its First Horizon project vehicle this month.

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