Takata Said Near $1 Billion Air-Bag Settlement With U.S.

Updated on
  • Announcement of Justice Department accord could come Friday
  • Air-bag maker’s shares soar by daily limit in Tokyo trading

Takata Said Nearing $1B Settlement

Takata Corp. and the U.S. Justice Department may announce a settlement as soon as Friday over air bags blamed for deadly deployments in cars, with a fine as large as $1 billion and possible criminal charges, people with knowledge of the matter said. The company’s shares soared by the daily limit in Tokyo.

The settlement with the Japanese air-bag maker, whose devices have been linked to at least 17 deaths worldwide, is said to include a wire fraud charge and a fine ranging from the hundreds of millions of dollars to $1 billion, said one of the people, who asked not to be named because the discussions are confidential. Closure with the Justice Department would wrap up the criminal portion of Takata’s auto safety recall, which was the largest in history, and allow it to move forward with its hunt for a buyer.

Takata jumped 16 percent to 1,061 yen as of 9:29 a.m. in Tokyo trading. The 150 yen gain is the daily exchange-imposed maximum and sets the shares on course to close at the highest since November 2015.

The Justice Department started investigating Takata after its air-bag inflators were found to degrade over time and sometimes explode with such force that they broke and shot shrapnel at vehicle occupants. The manufacturer also has been accused by government transportation regulators and Honda Motor Co. of manipulating test data and playing down the gravity of the problem after the first victim was reported in 2008.

Move Forward

A settlement would help Takata move forward with its search for a buyer because it would give bidders more clarity about the company’s legal challenges. Takata has been negotiating with several bidders for months, but the process has been hampered because buyers are trying to gauge exposure to legal risk and costly civil lawsuits.

Takata and its financial adviser, Lazard Ltd., have asked prospective buyers to complete their due diligence around February, with a successful bidder targeted to be announced in the quarter ending in March, people familiar with the matter said last month.

Takata faces a cascade of recall costs, compensation and penalties after regulators ordered recalls scheduled through at least 2019 that could eventually exceed 100 million air bags used by more than a dozen automakers, including Honda, Volkswagen AG and General Motors Co. The recalls would phase out the use of ammonium nitrate as a propellant, a chemical that degrades the mechanism over time and that other inflator makers don’t use.

The recall costs alone could amount to more than 1 trillion yen, or $8.8 billion, according to Takaki Nakanishi, an analyst at Jefferies Group LLC. Takata, the third-biggest air-bag maker in the world, started its search for a buyer last year.

The pending settlement was reported earlier by the Wall Street Journal and Reuters.

— With assistance by David McLaughlin

(Updates with share move from first paragraph.)
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