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ZF in approach for TRW in consolidating car parts sector

ZF Official Logo -ZF in approach for TRW in consolidating car parts sector

By Robert Wright in New York and Henry Foy in London

Shares in TRW Automotive, one of the world’s largest auto component suppliers, surged on Thursday after it said it had received a “preliminary, non-binding” takeover approach, later confirmed as coming from ZF Friedrichshafen of Germany.

TRW’s confirmation did not name the potential bidder but its statement came shortly after Bloomberg reported that it had received an approach from ZF, which subsequently announced that it was in the preliminary stages of discussing a possible acquisition of TRW.

Any deal would be one of the biggest ever in the rapidly consolidating auto components industry. The two combined would have had annual sales last year of around $39bn.

“The company is evaluating the proposal as well as other strategic alternatives which may enhance stockholder value,” TRW said. “The company will continue to execute its existing business plan while it conducts this analysis.”

TRW’s shares, which had been performing strongly in recent weeks, were up 8 per cent by close of trading in New York at $98.91. At that price, the company’s market capitalisation is $11bn. TRW had taken on Goldman Sachs as its adviser, it said.

TRW is particularly strong in safety systems, including the driver assistance systems that are increasingly being added to new cars. ZF specialises in power train technology such as automatic gearboxes.

The global auto components industry has become increasingly consolidated in recent years as growing standardisation between models has increased the average size of component orders. Of the world’s 100 largest automotive suppliers, the global top 10 account for 60 per cent of total revenues, according to research by Strategy &, the consultancy.

A merger would help the new company to compete better with Germany’s Bosch, the world’s largest automotive component supplier by revenues, and Continental, also from Germany.

Michelle Krebs, an analyst at autotrader.com, said it would be “very interesting” if ZF bought TRW, one of the longest-established suppliers to the US auto industry. “The size of the acquisition is notable,” she said.

TRW’s biggest single customer is Germany’s Volkswagen, which accounted for 24.7 per cent of last year’s sales, followed by Ford, with 18.5 per cent. The company’s biggest single market last year was Europe, which provided 40.8 per cent of revenue, followed by North America, which provided 35.6 per cent.

Like other companies associated with the auto industry, components suppliers have been suffering in Europe, where car sales have declined sharply in many countries, but benefiting in North America from the US car sales boom.