Giant car parts
is to buy security supplier
The deal is about self-driving cars and setting up the supply chain that will eventually allow automakers to deliver autonomous vehicles to consumers.
Buying Veoneer (ticker: VNE) “will be our ADAS company as a global leader,” Magna (MGA) CEO Seetarama Kotagiri said in a conference call on Friday. ADAS stands for advanced driver assistance systems. ADAS includes features such as adaptive cruise control and lane assist. Self-driving cars, in one sense, represent the combination of all ADAS functions currently on the market and under development. “This acquisition is consistent with our forward-thinking portfolio strategy… which is to accelerate the deployment of capital into high-growth areas, in this case,” said Kotagiri.
This is not a fusion of equals. Magna has a market cap of about $26 billion, while the deal values Veoneer shares at about $3.1 billion. Magna will pay $31.25 in cash for Veoneer’s outstanding stock, which closed Thursday at $19.93. Veoneer shares are up about 55% in premarket trading to nearly $31 a share. Since Veoneer shares are trading slightly below Magna’s offer price, it appears investors expect Magna to close the deal on current terms.
Magna shares are down 4%, suggesting shareholders may be a little cautious about the acquisition.
One of the reasons is that Magna pays more than $3 billion for a company that is not profitable. But Magna’s management believes the combination will enable $100 million in synergies and that the mix of Veoneer businesses is a perfect fit within a larger organization. For example, Magna gets Veoneer’s sensor and software expertise, which are becoming increasingly important for modern ADAS functions.
Berenberg analyst Michael Filatov wrote on Friday that the deal will align Magna with the ADAS leader
(APTV) in terms of ADAS sales. “[Magna] clearly strives to be the complete vehicle provider for the car of tomorrow,” the analyst added.
Filatov does not cover Magna, but assessed Veoneer shares Hold when announcing the merger. Only four of the 19 analysts covering Veoneer, or 21%, rated stock buying. The average Buy-rating ratio for equities in the
is about 55%. Analysts, it seems, failed to see the acquisition potential.
While analysts like Filatov are reviewing deal details, few are commenting on the quality of the deal. That comes later.
Barron’s recently wrote positively about Magna, believing it could benefit from the improvement in global car sales and the shift to electric cars. Since that article came out, Magna stocks are up about 68%. The
Dow Jones industrial average,
by comparison, over the same period are up about 25% and 22% respectively.
The expansion in ADAS seems to give Magna a new growth leg. That’s another plus for the stock, as long as the price for Veoneer is right.
Write to Al Root at firstname.lastname@example.org