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.
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.
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.
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