ZF Friedrichshafen buying TRW Automotive for about $11.74 billion

LIVONIA, Mich. – German automotive transmission maker ZF Friedrichshafen AG is buying Michigan-based TRW Automotive for $11.74 billion, a move that creates the world’s second-largest auto supplier.

The deal, with a total value of about $13.5 billion including the assumption of TRW’s debt, gives ZF access to TRW’s portfolio of advanced driver assistance and safety products, including air bags and radar-activated cruise control that automatically stops cars if something is in their path. Government regulations and consumer buying preferences are moving toward cars that take on more driving tasks such as automatic emergency braking.

“It does help ZF start to transform their business and expand their business to what industry is frankly moving toward,” said Mike Wall, an analyst with IHS Automotive. “We’re going to see the mainstream adoption of more and more of this technology in everyday vehicles.”

ZF will pay $105.60 per TRW share, a 2 per cent premium to its Friday closing price of $103.85 and a 16 per cent premium to its closing price on July 9, before ZF confirmed it was working on the deal.

TRW Automotive Holdings Corp., based in Livonia, Michigan, will be a separate division within ZF, which is based in Friedrichshafen, Germany. ZF said in a statement that the Detroit area would remain a “major business centre” for the merged company.

The deal will create an automotive supplier business with combined sales of approximately $41 billion and 138,000 employees. That would be second only to German supplier Robert Bosch GmbH, according to rankings compiled by the industry publication Automotive News. Bosch had sales of $59 billion in 2013 and has 281,381 employees worldwide.

Earlier Monday, ZF announced plans to sell its share of a steering system joint venture to Bosch. The decade-old venture between Bosch and ZF had sales of $5 billion in 2013. Terms of the sale weren’t disclosed.

Last week, TRW Automotive announced the sale of its engine valve business to Federal-Mogul Holdings Corp. for $385 million, apparently clearing the way for the ZF deal. Both actions will likely ease European and U.S. regulatory approval of the ZF and TRW merger.

Both companies’ boards approved the transaction, which will be financed with available cash and debt financing. There’s no financing condition.

The deal is targeted to close in the first half of 2015. It still needs approval from TRW shareholders.

TRW’s stock declined 84 cents, or just under 1 per cent, to $103.01 in midday trading Monday.