Editor's Note: Updates throughout with analyst comment and additional background
TRATON Group is giving Navistar International Corp. (NYSE:NAV) until noon Friday to accept its $43-a-share bid for the 83% of the company it does not already own.
In a letter to Navistar Executive Chairman Troy Clarke, TRATON said its Sept. 14 offer, raised from a January bid of $35 a share, "fully values" the Lisle, Illinois-based truck maker.
TRATON's unsolicited offer on Jan. 30 valued the rest of Navistar at $2.9 billion.
"We still believe that this price of $43 per share reflects an extremely attractive premium to Navistar shareholders (a premium of 46% over Navistar's 90-day volume-weighted average price of $29.37 as of September 9, 2020, and a premium of 79% over Navistar's unaffected price on the day before our January 30, 2020 proposal)," TRATON said in its two-page letter.
Navistar said it is discussing next steps and a response. The company's last statement on Sept. 14 said the $43 bid was good enough to open its books to TRATON, which first invested in Navistar in 2016. TRATON said its due diligence validated its "best and final" offer.
But that doesn't necessarily mean negotiations are over.
"I know that best and final does not have a legal definition in the U.S. So, there's no reason that they couldn't go a little bit higher," Stephen Volkmann, managing director of equity research at Jefferies & Co., told FreightWaves.
Volkmann, who has covered Navistar for many years, has a $45 target price on the company. Navistar shares closed Wednesday at $36.00, down 19.03% following TRATON's ultimatum.
Both Navistar and TRATON have strong reasons to get a deal done. But the management of the two companies is not the only decision-maker.
"The issue is there are several cooks in the kitchen," Volkmann said. "You have the management of Navistar. You have the management of TRATON. And then you have two independent investors with board seats and reasonably large holdings."
Those independent directors are billionaire investor Carl Icahn and financier Mark Rachesky. Each owns about 16% of Navistar shares. The New York Post reported in September that Rachesky was seeking $70 a share for Navistar. A spokesman denied that. Icahn has not spoken publicly about the proposed TRATON takeover.
Getting a deal done
Navistar, the smallest of the major players in the U.S. truck market, wants to be part of a global organization to financially compete in a wave of technologies overtaking the industry,, Volkmann said.
"There is a lot to spend your money on if you're doing research and development in the truck business. Having a big, global company umbrella under which to do that obviously gives you a lot more options than trying to go it alone as a small player in one market."
TRATON went public in June 2019 after operating as Volkswagen Truck and Bus Group. Its stated goal under former CEO Andreas Renschler was to become a "global champion" in trucking A presence in North America would allow it to compete with global rivals Daimler Trucks and Volvo Group.
Of TRATON, whose brands include Swedish truck Maker Scania and Germany's MAN, Volkmann said: "You cannot be a global champion if you have no U.S. presence. And the fact is there is no other way to get U.S. presence" than a merger.
Navistar and TRATON cooperate in purchasing and powertrain programs. Both have invested in autonomous truck startup TuSimple. Navistar is working with TuSimple to bring a Level 4 high- automation truck to the market in 2024.
"You have this unusual situation where neither one of them has a lot of options," Volkmann said. Navistar more or less forced TRATON to bid for the rest of the company because ownership exceeding 17.7% is disallowed. So, TRATON could not buy additional shares in the open market. It could persuade Icahn and Rachesky to back a sale.
The trucking industry is near the bottom of its typical two-year cycle. Getting a deal done now will be cheaper than waiting, Volkmann said.
"The longer they wait, the bigger these order books are going to get, the bigger the earnings numbers are going to get. And it's just going to bid up the multiples over time.
"I think if they don't get something done pretty quickly, they're going to miss the cycle and they're going to have to wait until the next downturn," Volkmann said. "I think it would be a shame if they somehow, despite everyone's best interest, didn't get it done."