Wednesday, November 26, 2008

Navistar could sell foundry business, CEO says

* Japan's Hino and Isuzu Motors, and India's Amtek, Hinduja and Mahindra & Mahindra could bid, industry sources say 
* Castwell Products, TMB Industries, All-American Holdings, and Advanced Metals Group could also bid, banker says 
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Navistar International (NYSE:NAV), the Warrenville, Illinois-based truck, engine and auto parts manufacturer, could sell its foundry business, said CEO Dan Ustian in an interview. The business, consisting of one foundry in Indianapolis, Indiana, and another in Waukesha, Wisconsin, produces cylinder heads and small ductile iron components for trucks and diesel engines. Ustian said the business is lagging because of labor costs, and Navistar "can't manage" it. He added that a larger domestic player could have gone for it by now if not for the credit crunch. 
The company, which does not break down its foundry revenues, declined to comment on the valuation of the business. Navistar's market capitalization is USD 1.48bn. 
Navistar's financial advisors are Credit Suisse and Bank of America, said Ustian. 
One potential bidder for the foundry business, according to Ustian, could be listed, Brazil-based Tupy. A Navistar spokesperson added that the company has engine manufacturing facilities in Brazil.
A US-based industry banker said that domestic players would also be interested in the segment and could get financing for a deal even in the current financial environment. Such companies include Castwell Products, owned by Texas-based private equity firm Hunt Special Situations Group, and Illinois-based private equity group TMB Industries, which is actively trying to build up its foundry platform. The banker said that Georgia-based All-American Holdings, run by two investors, is interested in corporate divestitures, and would "take a hard look" at assets that may be distressed. Pennsylvania-based Advanced Metals Group also likes to look at corporate carve-outs, the banker said. 
The foundry industry has an advantage when it comes to financing, as companies generally have a high level of assets to leverage, noted the banker. However, valuations have come down, and if the business is underperforming, Navistar could probably expect a valuation of only around 3x to 4x EBITDA, said the banker. 
In terms of foreign bidders, Indian foundry groups have been moving into Europe and North America and could be logical buyers, the banker said. He mentioned listed Amtek Auto, Hinduja Foundries and Mahindra & Mahindra as potential bidders. Mahindra currently has a distribution joint venture with Navistar. 
Isuzu Motors, the listed Japanese truck and engine manufacturer, could consider pursuing US foundry segments if a company such as Navistar approached, said an Isuzu insider. Isuzu's listed subsidiary, I Metal Technology, manufactures cast iron parts for vehicles, the insider said. The company does not have sales and production bases in the US, according to Isuzu's website. 
Listed, Japan-based Hino Motors could also target the foundry segment to strengthen its US business, said a Japan-based analyst. A Hino insider, however, said the company does not have immediate acquisition plans due to a shortage of funds. The insider added that Hino only sells about 5,000 trucks annually in the US. 
Navistar's stock is trading at a near 52-week-low of USD 20.74 per share. Recent news reports noted that the stock fell 19.4% after the company's announcement earlier this week that it was restructuring its truck parts segment into four separate units and cutting jobs in that segment. 
The company also reported losses in its diesel engine unit in its latest 10-K filing. Ford, one of its major diesel parts customers, purchased 25.5% fewer units compared to 2006, a result of its stricter purchasing requirements. In spite of the downturn, Ustian said that Navistar does not plan to sell the diesel engine unit, adding that pickup truck companies, whom the product is targeted at, are unlikely to spend money for the segment. 

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Blogger Kaleem Askforseo said...

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August 16, 2012 at 10:37:00 AM EST  

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