ZF Weighs More Deals, Asset Sales Following TRW Acquisition

  • Debt reduction making progress a year after TRW deal completed
  • ZF isn’t under pressure to raise funds with stock sale: CFO

ZF Friedrichshafen AG is considering more acquisitions as well as selling assets after catapulting into the ranks of the world’s biggest car-parts manufacturers via last year’s $12.9 billion takeover of TRW Automotive Holdings Corp.

ZF is making progress on reducing debt and integrating its former U.S. peer, and the closely held German company is under no pressure to raise fresh funds by selling shares, Chief Financial Officer Konstantin Sauer said in an interview in Frankfurt.

“We are keeping our options open to strengthen our business in targeted areas,” Sauer said. Potential deals would be smaller than the TRW purchase, and the company might also sell some assets as it seeks growth through 2025 in line with industry trends such as automated driving, electric cars and new safety features. “If we’re not the best owner for a specific business area, then of course we’d think about a disposal.”

Pressure among car-parts makers to consolidate has sparked a boom in takeovers and alliances as costs surge for developing new technology and emission regulations tighten across the globe. Many vehicle producers also prefer to buy comprehensive technology packages from a single provider instead of individual parts from a range of smaller suppliers, some of which have limited financial power to invest in fields that don’t offer immediate returns.

Lower Debt

ZF is targeting revenue in a range of 36 billion euros ($40.4 billion) to 35 billion euros this year and an adjusted operating margin of 5 percent to 6 percent of sales. Net debt stood at 7.41 billion euros at the end of last year after a 1.4 billion-euro reduction in the second half of 2015.

“We want to be in a situation at the end of the year that creates the precondition for an investment grade rating in 2017,” he said. Following the deeper-than-expected debt cut, S&P Global Ratings lifted ZF’s credit rating to BB+, one step below investment grade, and gave it a stable outlook, indicating another change isn’t expected soon.

ZF, which celebrated its 100th anniversary last year, is 93.8 percent-owned by the Zeppelin Foundation, a legacy of airship pioneer Ferdinand von Zeppelin. The remaining 6.2 percent is held by a private German family foundation.

Since the TRW takeover, ZF has focused on digitalization of mechanical parts, developing electric-vehicle components and enhancing safety and emissions-control systems. Sales and purchasing activities have been largely merged, and operations in North America are being bundled at TRW’s former headquarters in the Detroit suburb of Livonia, Michigan. ZF’s previous U.S. outpost in nearby Northville will become a sales and engineering
center for the region.

‘Good Progress’

“We’re making good progress with the integration and in some areas we’re faster than initially anticipated,” Sauer said.

TRW was de-listed from the New York Stock Exchange in May 2015 following ZF’s purchase, which was supported by moderate financing costs amid low interest rates.

“The timing of the deal has proved good,” Sauer said. “The markets were developing well, and they still are.”

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