German car parts maker ZF Friedrichshafen [ZFF.UL] has reached a deal to buy U.S.-based TRW Automotive Holdings Corp (TRW.N) for $13.5 billion including debt, creating a global automotive supply powerhouse with combined annual sales of more than $40 billion.
The transaction would more than double ZF's sales in two of the world's largest car markets: China and the United States, and marry ZF, a major provider of steering systems and powertrains, with a leading maker of automotive safety products such as brakes and air bags.
ZF is offering $105.60 in cash for each TRW share, or nearly $12 billion based on shares outstanding. That is a premium of 16 percent over the U.S. company's closing price on July 9, before news of ZF's buyout interest emerged.
The price represents a multiple of 7.6 times TRW's earnings before interest, tax, depreciation and amortization for the year ended June 2014, making it one of the most expensive takeovers in the auto parts sector.
ZF earlier on Monday announced the sale of its steering unit to Robert Bosch GmbH [ROBG.UL], a move to clear antitrust hurdles as part of a broader combination with TRW.
Reuters first reported on July 30 that ZF was in advanced talks to buy TRW for around $105 per share, but wanted to have a plan to divest its steering business before finalizing the deal.
The transaction is subject to antitrust and U.S. foreign investment clearance and is expected to close in the first half of 2015, ZF said on Monday.
TRW, based in Livonia, Michigan, is a global maker of air bags, electronics, and braking and steering equipment for cars. It sells to nearly all major automakers, including Ford Motor Co (F.N) and General Motors Co (GM.N)
The company, which had sales of $17.43 billion last year, counts Volkswagen AG (VOWG_p.DE) as its largest customer and derives about 40 percent of its revenue from Europe.
Privately owned ZF Friedrichshafen, which supplies chassis components to companies including Audi AG (NSUG.DE) and BMW (BMWG.DE), generates about half its revenue in Europe. It posted 2013 revenue of 16.84 billion euros ($21.7 billion).
ZF, which already helps carmakers develop hybrid-powered drivetrains, has been on the lookout for a strategic partner after an analysis showed them that semi-autonomous driving functions and vehicle connectivity will develop into important new business areas.
Buying TRW is an attempt by ZF to increase its exposure to sensors and electronic components. Stricter safety and anti-pollution rules have forced carmakers to install more complex onboard electronics that help to make acceleration, braking and engine management systems more intelligent.
Goldman Sachs Group (GS.N) acted as financial adviser to TRW and Simpson Thacher & Bartlett LLP and Gleiss Lutz were legal advisers. Citigroup Inc (C.N) and Deutsche Bank (DBKGn.DE) advised ZF while Sullivan & Cromwell acted as legal adviser.
ZF said it has received firm financing commitments from Citigroup and Deutsche Bank and remains committed to its conservative financial policy, expecting to reduce leverage significantly again in the coming years.
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