Navistar Moves Higher On Volkswagen's Planned Truck IPO

Shares of Navistar (NYSE:NAV) have moved higher for the second straight day on news that Volkswagen AG is planning to take the Traton SE truck group public.

NAV has a strategic alliance with Traton (formerly Volkswagen Truck & Bus AG) to jointly collaborate on engine technology, provide the sale of engines and provide contract manufacturing. The two companies also have development agreements on engine and transmission projects.

Volkswagen, through its wholly-owned Traton subsidiary, owns approximately 16.6 million shares, or 16.8 percent of NAV, according to NAV's last 10-k filing in December 2018. Additionally, Traton holds two seats on NAV's board.

On May, 13, Volkswagen AG announced that it plans to take its Traton heavy-trucks division public by summer 2019. Volkswagen had plans to IPO Traton earlier in 2019, but pulled the offering, citing market uncertainty.

The sale of Traton would likely be the biggest initial public offering (IPO) in Europe this year; its total valuation may be as high as 25 billion euros, according to Bloomberg Intelligence. Previously, Volkswagen had said it would list up to 25 percent of Traton.

The announcement at Volkswagen's annual general meeting, is part of its overall corporate transformation, which is focused on increasing the company's valuation. Volkswagen's Chief Executive Officer Herbert Diess announced that its new management structure, wherein decisions are made at the lowest level possible (among those closest to operations), would entail a compensation system established on the company's overall value, versus pay for individual targets.

The corporate transformation includes the potential restructuring of assets. Volkswagen is vetting the sale or restructuring of other businesses. Diess offered, "We are reviewing whether we are still the best owner for various businesses." Specifically mentioned in his remarks were MAN Energy Solutions, a manufacturer of large-bore diesel engines for marine and stationary applications, and Renk AG, a transmissions and gear manufacturing company. Diess said that the company would look at opportunities for these businesses, ranging from joint ventures to full or partial sales.

Volkswagen has long been rumored to have interest in vertically integrating Navistar and some may see this move as a means of raising the funds to acquire the medium- and heavy-duty truck manufacturer.

According to Reuters, "A flotation could give Traton the resources to deepen its relationship with U.S. truck maker Navistar International Corporation, in which it currently owns a 16.85 percent stake."

But in an interview with Bloomberg TV after the annual meeting, Traton's Chief Executive Officer Andreas Renschler said, "The most important point for us is that we've made the decision to IPO now." According to Yahoo Finance, "He said [Volkswagen] is happy with the Navistar partnership and doesn't have any current plans to raise its 17 percent stake."

Traton includes the MAN, Scania and Volkswagen truck brands. The company is the market leader in its core markets of Europe and Brazil. It posted 13.7 percent growth in truck sales to 233,000 units in 2018.

Navistar was up 3 percent on Monday, May 13, 2019 and is up more than 8 percent in Tuesday's trading. Volkswagen's stock is down modestly over the two-day period.

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