Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

A court-mandated bankruptcy is in Takata Corp.'s stars, if shareholders in the Japanese air-bag maker are to be believed.

Stock in the group, whose faulty products are linked to at least 17 deaths and the subject of recalls that may exceed 100 million units, plunged by the daily limit Monday in Tokyo after an announcement over the weekend that Key Safety Systems Inc., a U.S. auto supplier controlled by China's Ningbo Joyson Electronic Corp., has been recommended as a preferred bidder. With sell orders overwhelming buys, few shares changed hands.

Hang on, aren't white knights generally good news?

Well, yes and no. Although bankruptcy protection would help shield Joyson Electronic from billions of dollars of liabilities, it would also wipe out investors' equity. Takata has indicated it wants to avoid that scenario, but shareholders clearly need more convincing.

No Safety Cushion
Takata shares dropped by the daily limit Monday, despite news Key Safety Systems has been recommended as a preferred bidder
Source: Bloomberg

Purchasing Takata would be a good deal, though, for Joyson Electronic, one of China's largest private-sector automotive manufacturers. It would make Key Safety the world's second-largest air-bag maker, plus give it access to the big Japanese carmakers that are Takata customers. Controlling Takata's assets could also turn out to be a nice bargaining chip, considering rival Autoliv Inc. has expressed interest in parts of the business.

Japanese Drivers
Much of Takata's revenue is sourced locally
Source: Bloomberg

Takata's future costs are obviously a black hole, especially if customers move to recoup expenses incurred as a result of the recalls. And any sale may be a way off, considering key customers also have to be on board and could have a say in whether Takata files for bankruptcy protection or not.

Shareholders, for their part, may be wishing this white knight rides into the sunset.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net