VW’s Traton Eyes China Push After $3.7 Billion Navistar Deal

Volkswagen AG’s Traton SE truck unit will seek to expand in Asia to build a broader global presence, after finalizing the $3.7 billion takeover of U.S. affiliate Navistar International Corp.

The company plans to fill remaining gaps in its industrial footprint in markets including China, Traton said Wednesday in a prepared statement for its annual general meeting.

“Chinese fleet customers are increasingly looking toward higher-end vehicles,” Traton Chief Executive Officer Matthias Gruendler said. “They are expecting more and more in terms of efficiency and safety -- we want to meet this demand.”

Acquiring Navistar marks a milestone for VW’s long-standing efforts to forge a viable rival for industry leaders Daimler AG and Volvo AB on a global scale. Traton makes Scania and MAN vehicles as well as VW-branded trucks for emerging markets and has been largely dependent on sales in Europe and Latin America.

Traton earlier agreed to pay $44.50 a share for the 83% of Navistar stock it doesn’t own, with parent VW providing a loan of 3.3 billion euros ($3.9 billion) to fund the transaction that is due to close July 1. VW is Navistar’s second-largest shareholder with a 16.7% stake, narrowly behind billionaire investor Carl Icahn.

Capital Raising

“We believe Traton equity story is at an inflection point with potential capital raise in the third quarter,” Jefferies analyst Himanshu Agarwal said Friday in a note. To help finance the deal, Traton could raise as much as 1.5 billion euros by selling shares for 27 euros a piece, matching the price of its initial listing two years ago, he said.

Following the Navistar deal, Traton will “set its sights firmly on strengthening its capital structure,” the company said Wednesday. Traton declined 1.5% at 10:40 a.m. in Frankfurt trading.

Even as analysts largely praised the acquisition, Traton has in the past struggled to integrate industrial operations after taking full control. Rivalries marred cooperation between Scania and MAN for years, and Traton embarked on a deep restructuring at MAN after cost-sharing projects with Scania failed to stop a dramatic erosion in earnings.

While working on a bridgehead in the U.S. -- the truck industry’s biggest profit pool -- Traton has taken steps to build its presence in Asia. It cooperates with Toyota Motor Corp.’s truck subsidiary Hino on purchasing as well as battery-electric and fuel-cell trucks. Traton’s Swedish Scania brand announced in November it will build a wholly-owned production facility in China to make trucks starting early next year.

The factory, set to also house research and development activities, will play an important role for the expansion plans in China, Traton said Wednesday.

Earnings continued to improve in the second quarter despite supply bottlenecks, according to preliminary figures, following a robust start to the year. Truck orders and sales during the second quarter were higher than during the first three months, when orders hit a record, Traton said.

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