Auto Parts Giant Magna Enters Self-Driving Cars with Acquisition of Veoneer
Giant of auto parts
is purchase security provider
The deal is about self-driving cars and building the supply chain that will eventually allow automakers to deliver self-driving vehicles to consumers.
The purchase of Veoneer (ticker: VNE) “will position our ADAS company as a global leader, ”Seetarama Kotagiri, CEO of Magna (MGA), said on a conference call Friday. ADAS is the abbreviation of advanced driver assistance systems. ADAS includes features such as adaptive cruise control and lane keeping assist. Self-driving cars, in a certain respect, represent the combination of all ADAS features on the market today and under development. “This acquisition is in line with our portfolio strategy going forward… which is to accelerate the deployment of capital to high growth areas, in this case,” said Kotagiri.
It is not a fusion of equals. Magna has a market cap of around $ 26 billion, while the deal values Veoneer’s stock at around $ 3.1 billion. Magna is paying $ 31.25 in cash for the outstanding stock of Veoneer, which closed Thursday at $ 19.93. Shares of Veoneer rose about 55% in pre-market trading to almost $ 31 per share. Given that Veoneer’s shares are trading a little below Magna’s offer price, it seems investors expect Magna to close the deal under current conditions.
Magna stock is down 4%, suggesting that shareholders may be feeling a bit cautious about the acquisition.
One of the reasons is that Magna pays over $ 3 billion for a business that is not profitable. But Magna management believes that $ 100 million in synergies are possible from the combination and that Veoneer’s business mix will fit right into a larger organization. Magna, for example, will benefit from Veoneer’s expertise in sensors and software, which are becoming increasingly important for modern ADAS functionality.
Berenberg analyst Michael Filatov wrote on Friday that the deal will put Magna on par with ADAS leader
(APTV) in terms of ADAS sales. “[Magna] clearly aims to be the complete vehicle supplier for the car of tomorrow, ”added the analyst.
Filatov is not covering Magna, but noted the actions of Veoneer Hold before the merger was announced. Only four of the 19 analysts covering Veoneer, or 21%, rated the Buy stocks. The average purchase rating ratio for stocks in the
is about 55%. Analysts, it seems, didn’t see the take-out potential.
As analysts like Filatov scrutinize the details of the deal, few are yet to comment on the quality of the deal. It will come later.
Barron recently wrote positively about Magna, believing it could benefit from improved global auto sales as well as the shift to electric cars. Since this article appeared, Magna shares have gained about 68%. The
Dow Jones industrial average,
for comparison, are up about 25% and 22%, respectively, over the same period.
The expansion of ADAS looks like it could give Magna another stage of growth. This is another bright spot for the stock, as long as Veoneer’s price is right.
Write to Al Root at [email protected]