Volkswagen’s Traton In $3.7B Deal To Snap Up Navistar; Street Says Hold

Volkswagen’s truck unit Traton has finally reached an agreement to snap up Navistar International in an $3.7 billion equity deal to expand its footprint in North America.

According to the terms of the deal, Traton will buy all of the outstanding shares of Navistar (NAV) it doesn’t already own, at a price of 44.50 per share in cash. The US truck maker’s shares closed less than 1% higher at $43.37 on Friday. Traton currently owns 16.7% of Navistar’s common stock, which the German automaker bought in 2016.

The signing of the deal comes after Traton raised its purchase offer for the US peer from $43 per share in October and from the $35 per Navistar share offered at the end of January.

“This transaction builds upon our highly collaborative and successful strategic alliance and further enhances the growth trajectory of the combined company, while delivering immediate and substantial value to our shareholders,” said Navistar CEO Persio Lisboa. “We look forward to continuing to work with the Traton team to create opportunities for our employees and provide an outstanding experience for our customers and dealers through best-in-class products, services and technologies.”

The deal is expected to close in mid 2021, pending Navistar shareholder approval, customary closing conditions as well as regulatory approvals. Major shareholders, including Icahn Capital and MHR Fund Management, have already agreed to vote in favor of the transaction.

Shares in Navistar are up a stellar 50% so far this year, with the $40.43 average analyst price target suggesting an almost 7% downside potential over the coming 12 months.

For now, Raymond James analyst Felix Boeschen remains sidelined on the stock with a Hold rating.

“While we admire Navistar’s management, continued turnaround story and long-term profit improvement plan, we surmise NAV will remain largely in a “transition” phase through 2021,” Boeschen wrote in a note to investors. “Longer term, we believe NAV enjoys one of the most idiosyncratic opportunity sets, anchored by its 4.0 transformation, its alliance with Traton, and considerable runway for market share (re)-gains – all of which are likely to deliver demonstrable profit improvement in out years.”

However, “all said, for now, we see a balanced risk/reward,” the analyst summed up.

The rest of the Street agrees with Boeschen’s outlook. The Hold analyst consensus is backed by 8 unanimous Hold ratings. (See Navistar stock analysis on TipRanks)