Auto parts elephantine Magna International is buying information supplier Veoneer. The woody is each astir self-driving cars and mounting up the proviso concatenation that volition yet alteration car makers to present autonomous vehicles to consumers.
Buying Veoneer (ticker: VNE) “will presumption our ADAS business arsenic a planetary leader,” said Magna (MGA) CEO Seetarama Kotagiri successful a Friday league call. ADAS is abbreviated for advanced operator assistance systems. ADAS includes features specified arsenic adaptive cruise power and lane-keeping assistance. Self-driving cars, successful 1 respect, correspond the operation of each the ADAS features successful the marketplace contiguous and presently being developed. “This acquisition is accordant with our go-forward portfolio strategy …namely accelerating the deployment of superior towards high-growth areas, successful this case,” Kotagiri said.
This isn’t a merger of equals. Magna has a marketplace capitalization of astir $26 billion, portion the woody values Veoneer banal astatine astir $3.1 billion. Magna is paying $31.25 successful currency for the outstanding banal of Veoneer, which closed Thursday astatine $19.93. Veoneer shares are up astir 55% successful premarket trading to astir $31 a share. Since Veoneer banal is trading a small beneath the Magna offering price, it appears investors expect Magna to get the woody done nether the existent terms.
Magna banal is down 4%, suggesting shareholders mightiness consciousness a small cautious astir the acquisition.
One crushed is Magna is paying much than $3 cardinal for a institution that isn’t profitable. But Magna absorption believes $100 cardinal successful synergies is imaginable from the operation and that the premix of Veoneer businesses volition acceptable perfectly wrong a larger organization. Magna, for instance, volition get Veoneer’s sensor and bundle expertise, which are becoming much important for modern ADAS features.
Berenberg expert Michael Filatov wrote Friday the woody volition enactment Magna connected par with ADAS person Aptiv (APTV) successful presumption of ADAS sales. “[Magna] is intelligibly aiming to beryllium the implicit conveyance supplier for the car of tomorrow,” added the analyst.
Filatov doesn’t screen Magna, but rated Veoneer shares Hold going into the merger announcement. Only 4 retired of 19 analysts covering Veoneer, oregon 21%, rated shares Buy. The mean Buy-rating ratio for stocks successful the S&P 500 is astir 55%. Analysts, it seems, didn’t spot the takeout potential.
While analysts similar Filatov are reviewing woody details, fewer are commenting connected the prime of the statement yet. That volition travel later.
Barron’s precocious wrote positively astir Magna, believing it could payment from the betterment successful planetary car income arsenic good arsenic the displacement toward electrical cars. Since that nonfiction appeared, Magna shares person gained astir 68%. The S&P 500 and Dow Jones Industrial Average, for comparison, are up astir 25% and 22%, respectively, implicit the aforesaid span.
The enlargement successful ADAS looks similar it tin springiness Magna different limb of growth. That’s different affirmative for the stock, arsenic agelong arsenic the terms for Veoneer is right.
Write to Al Root astatine email@example.com