Magna International Inc. is buying the Swedish auto safety technology company Veoneer for US$3.8-billion in a drive to become a global leader in smart cars.
Stockholm-based Veoneer makes radar and cameras for cars, along with the software that runs self-parking and collision-avoidance capabilities, known as advanced driver assistance systems (ADAS). The company has 7,500 employees, including 1,700 software engineers.
Magna chief executive Swamy Kotagiri, who assumed the top job in January, said: “We expect the combined entity to be an industry leader in active safety solutions, to enhance its position in complete ADAS systems, and to be well-positioned for the transition toward higher levels of autonomy.”
Mr. Kotagiri, 52, was previously responsible for innovation at Magna as its chief technology officer, and ran the Aurora, Ont.-based company’s ADAS division. In a conference call on Friday, he said ADAS is a $13-billion global market that is expected to triple in size over the next decade.
Market leaders in the ADAS sector include Ireland’s Aptiv PLC, India’s Bosch Ltd. and Germany’s Continental AG, all of which are far larger than Veoneer. Magna said acquiring Veoneer expands the Canadian company’s ties to Asian and European auto manufacturers.
“Growth in Veoneer’s end-markets (i.e., active safety) is expected to accelerate meaningfully in coming years,” Scotiabank analyst Mark Neville wrote in a report. He said while the takeover is “arguably expensive,” the growth potential in ADAS is clear and “the acquisition was clearly made with the future in mind.”
In 2018, Veoneer was spun out of Sweden’s Autoliv, the world’s largest producer of airbags and seatbelts. The company has lost money in each of the past three years. Three institutional investors who collectively own 40 per cent of Veoneer’s shares pledged to vote in favour of the Magna takeover, which is expected to close by the end of the year.
Magna is offering US$31.25 a share for Veoneer, a 57-per-cent premium to the company’s closing price on Thursday, prior to announcement of the transaction. However, Scotiabank’s Mr. Neville said the purchase price is just a 2-per-cent premium to the Swedish company’s 52-week high.
Magna traces its roots to a tool and die shop set up in the garage of founder Frank Stronach’s home, in 1957. It is now one of Canada’s largest industrial companies, with more than 170,000 employees at 350 factories in 28 countries.
Magna will fund the all-cash acquisition by borrowing, and the company said on Friday it will suspend share repurchases as it pays down debt. Magna expects to achieve US$100-million in annual cost savings once it fully integrates Veoneer’s operations.
Citi is Magna’s financial adviser and Sidley Austin LLP serves as legal counsel. Veoneer’s investment bankers are Rothschild & Co. and Morgan Stanley, while its lawyers are Skadden, Arps, Slate, Meagher & Flom LLP.
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