Navistar selling stakes in two joint ventures to Mahindra
BY FRANCINE KNOWLES Business Reporter email@example.com December 18, 2012 8:42AM
The front parking lot of the new Navistar building, located on Warrenville Road in Lisle, is under construction, with new employees expected to move into the building in approximately a month. | Marianne Mather~Sun-Times Media
Updated: January 20, 2013 6:16AM
Lisle-based Navistar International Corp. engine and truck maker said it’s selling its stake in two joint ventures to India-based Mahindra & Mahindra Ltd. for roughly $33 million, part of its plan to divest under-performing businesses.
But Gimme Credit analyst Vicki Bryan has concerns about the price.
Mahindra will purchase Navistar’s stake in joint ventures Mahindra Navistar Automotives Ltd. and Mahindra Navistar Engines Pvt. Ltd., Navistar said Tuesday.
Following the purchase, which is expected to close in early 2013, the joint ventures would become wholly owned subsidiaries of Mahindra.
Navistar has been cutting costs and analyzing all of its businesses and programs to determine their return on invested capital and identify areas for improvement. In October, it announced it would close a truck manufacturing plant in Garland, Texas, the first half of next year due to too much manufacturing capacity in North America, eliminating 900 jobs. That followed 700 job cuts previously disclosed by the company.
Given its priorities, Navistar’s “capital and focus needs to be allocated to other business opportunities in the near term,” Troy Clarke, president and chief operating officer, said in a statement regarding the sale to Mahindra. “Mahindra has extensive experience and knowledge of the Indian automotive sector, and they are best situated to devote the time and resources required to capitalize on future opportunities in India,” Clarke said.
Bryan estimated Navistar’s investment in the joint ventures at $40 million to $50 million.
That “indicates a potential write-off of 20-30 percent,” she wrote in a research note. “If so, this has troubling implications for the actual market value of the rest of Navistar’s assets, bad news for other assets it might want to sell.”
The deal is subject to regulatory approval in India.
Navistar entered into the Mahindra Navistar Automotives joint venture in late 2005 to manufacture trucks and buses in India, source components and provide engineering services for the design and development of Navistar vehicle products. The Mahindra Navistar Engines joint venture was formed in 2007 and began producing engines in 2010.
While the Indian market has not expanded as Navistar originally expected, the company said it still sees promise in it. The agreement allows Navistar to continue sourcing components from India while Mahindra would continue to provide engineering services to Navistar, the companies said.
Navistar’s shares have plunged nearly 40 percent this year. The company lost $241 million the first nine months of this fiscal year, down from a profit of $1.47 billion in the same period a year ago.
In August, Navistar announced the abrupt retirement of its top executive, Daniel Ustian, and named Lewis Campbell its chairman and interim CEO. That move came after the company said it would buy 15-liter engines for its largest commercial trucks from competitor Cummins and was abandoning a lengthy and costly strategy, pursued under Ustian’s leadership, of trying to develop its own EGR emissions technology, a strategy that included paying fines to the U.S. Environmental Protection Agency for having noncompliant engines. Navistar had invested $700 million in the failed effort and lost market share because of it. The company now has decided to use the same exhaust treatment process as its competitors, called SCR, and is retrofitting its 13-liter and 11-liter engines.
Navistar announced Monday that it is shipping to customers its first 300 International ProStar Class 8 tractors equipped with Cummins engines.