Magna International is buying safety supplier Veoneer.
Courtesy Magna International Inc.; Veoneer|, Inc.
Auto parts giant Magna International is buying safety supplier Veoneer. The deal is all about self-driving cars and setting up the supply chain that will eventually enable car makers to deliver autonomous vehicles to consumers.
Buying Veoneer (ticker: VNE) “will position our ADAS business as a global leader,” said Magna (MGA) CEO Seetarama Kotagiri in a Friday conference call. ADAS is short for advanced driver assistance systems. ADAS includes features such as adaptive cruise control and lane-keeping assistance. Self-driving cars, in one respect, represent the combination of all the ADAS features in the market today and currently being developed. “This acquisition is consistent with our go-forward portfolio strategy …namely accelerating the deployment of capital towards high-growth areas, in this case,” Kotagiri said.
This isn’t a merger of equals. Magna has a market capitalization of about $26 billion, while the deal values Veoneer stock at about $3.1 billion. Magna is paying $31.25 in cash for the outstanding stock of Veoneer, which closed Thursday at $19.93. Veoneer shares are up about 55% in premarket trading to almost $31 a share. Since Veoneer stock is trading a little below the Magna offering price, it appears investors expect Magna to get the deal done under the current terms.
Magna stock is down 4%, suggesting shareholders might feel a little cautious about the acquisition.
One reason is Magna is paying more than $3 billion for a company that isn’t profitable. But Magna management believes $100 million in synergies is possible from the combination and that the mix of Veoneer businesses will fit perfectly inside a larger organization. Magna, for instance, will get Veoneer’s sensor and software expertise, which are becoming more important for modern ADAS features.
Berenberg analyst Michael Filatov wrote Friday the deal will put Magna on par with ADAS leader Aptiv (APTV) in terms of ADAS sales. “[Magna] is clearly aiming to be the complete vehicle provider for the car of tomorrow,” added the analyst.
Filatov doesn’t cover Magna, but rated Veoneer shares Hold going into the merger announcement. Only four out of 19 analysts covering Veoneer, or 21%, rated shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. Analysts, it seems, didn’t see the takeout potential.
While analysts like Filatov are reviewing deal details, few are commenting on the quality of the agreement yet. That will come later.
Barron’s recently wrote positively about Magna, believing it could benefit from the improvement in global auto sales as well as the shift toward electric cars. Since that article appeared, Magna shares have gained about 68%. The S&P 500 and Dow Jones Industrial Average, for comparison, are up about 25% and 22%, respectively, over the same span.
The expansion in ADAS looks like it can give Magna another leg of growth. That’s another positive for the stock, as long as the price for Veoneer is right.
Write to Al Root at [email protected]
