TRW Said to Get Takeover Approach From ZF Friedrichshafen

TRW Automotive Holdings Corp., the world’s biggest car-safety equipment supplier, has received a preliminary takeover approach from Germany’s ZF Friedrichshafen AG, in a bid to create the world’s second-largest auto-parts supplier by sales.

TRW confirmed in a statement yesterday that it has received a preliminary, non-binding proposal, without identifying the potential buyer. It has retained Goldman Sachs Group Inc. as a financial adviser. ZF said in an e-mailed statement it’s in talks with TRW about a possible offer and no decision has been made yet.

With the acquisition of TRW, ZF would add technology -- from air bags to collision sensors -- that keeps drivers secure and help them avoid crashes, to its existing suite of mechanical parts. The combination would create a company with almost $40 billion in annual sales, vaulting ZF to the No 2. spot among world’s largest auto-parts suppliers, rankings compiled by Automotive News show.

“With what ZF and TRW each bring, they would have all the dynamics you would need under one roof to have a fully automated vehicle,” said Richard Hilgert, a Chicago-based analyst with Morningstar Inc.

TRW has allowed ZF to conduct some due diligence, a person familiar with the matter said, asking not to be identified discussing a private matter. While no specific price has been discussed, closely held ZF values TRW at around $11 billion to $12 billion, this person said.

“The company is evaluating the proposal as well as other strategic alternatives which may enhance stockholder value,” TRW said in its statement. There is no guarantee that the talks may lead to a deal, the company said.

ZF won’t comment further on a possible acquisition until the talks have concluded, Martin Demel, a spokesman, said in the e-mailed statement.

Bosch, Denso

ZF currently ranks ninth among auto-parts suppliers, with TRW at 11th, Automotive News’s rankings show, based on last year’s sales. Combined, they could surpass Japan’s Denso Corp., which had about $35.8 billion in auto-parts sales in 2013, and rank behind Germany’s Robert Bosch GmbH.

For TRW -- whose shares are trading at record highs -- a sale now would capitalize on a global rebound in the auto industry, Hilgert said.

TRW closed at $95.63 in New York yesterday, giving the company a market value of about $10.6 billion. The shares rose as much as 11.6 percent in intraday trade, after the companies confirmed the talks, extending gains made when Bloomberg reported them.

“The best time for a seller is at the top of the market,” he said. “TRW is very conservative. I don’t think they’ll let it go for an inexpensive price.”

Safety Technology

Consumer demand and government regulation are spreading the adoption of features to prevent accidents and protect passengers and pedestrians. TRW, which derived most of its sales last year from safety-related products, said in April it projects the market for driver-assistance technology will grow more than five-fold through 2020.

The Livonia, Michigan-based company, whose biggest customer is Volkswagen AG, has rebounded from the U.S. recession along with the rest of the auto industry, reporting annual sales of $17.4 billion last year compared with $11.6 billion in 2009.

ZF had 2013 sales of 16.8 billion euros ($22.9 billion), with more than half of that from Western Europe, its annual report shows. The company’s net financial position, which includes cash as well as current and non-current securities, was 1.02 billion euros.

Based in Friedrichshafen, Germany, ZF makes steering systems, clutches and axles, and transmissions, including the fuel-efficient, nine-speeds Fiat SpA uses in its Jeep Cherokee SUVs and Chrysler 200 sedans.

Its primary shareholder is the Zeppelin Foundation, started by airship pioneer Ferdinand von Zeppelin in 1908.

Global Sales

TRW generates about 29 percent of its annual revenue from the U.S., with another 16 percent coming from China and 13 percent from Germany.

June was the auto industry’s best month in the U.S. since July 2006, with the seasonally-adjusted rate of sales in the country jumping to 16.98 million, according to researcher Autodata Corp.

The purchase would be the largest auto-parts takeover since Continental AG, the German maker of brakes and shock absorbers, acquired Siemens AG’s VDO Automotive unit for about 11.4 billion euros in 2007, data compiled by Bloomberg show.

Defense contractor Northrop Grumman Corp. sold TRW to Blackstone Group LP for about $4.7 billion in a deal announced in late 2002. TRW went public in February 2004 and has more than tripled in value since then, data compiled by Bloomberg show.

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