One of the largest U.S. auto suppliers, Livonia-based TRW Automotive Holdings Corp., said it has received a proposal to acquire the company — a sign that the auto supplier sector may be facing a new round of consolidation.
In a statement, TRW said it has received “a preliminary, non-binding proposal to acquire the company. The company is evaluating the proposal as well as other strategic alternatives which may enhance stockholder value” and has hired Goldman, Sachs & Co. as its financial adviser.
Several media outlets identified the bidder as privately held German supplier ZF Friedrichshafen. Barclays Capital said in a research note that “we believe that the news might spur merger consideration in the broader sector.” Some analysts also said TRW could draw competing offers from other big auto suppliers like Magna International.
With 2013 sales of $17.4 billion, TRW Automotive has operations in 24 countries, including 12 in the U.S., and employs 67,000 people worldwide — along with about 11,000 contract workers.
The company employs about 3,500 employees in Michigan at 15 facilities, which includes the company’s global headquarters in Livonia, building electronic braking systems (ABS, ESC, Traction Control) and commercial steering linkage components in the state. Most of the employees in Michigan are related to product development and testing. It’s not clear what any sale might mean for U.S. workers.
Barclays said ZF may be looking to realize synergies in the electric steering business, and gain a foothold in active safety systems and advanced driver assistance systems, so it can rival other large European suppliers such as Bosch and Continental.
TRW’s products include integrated vehicle control and driver assist systems, braking systems, steering systems, suspension systems, occupant safety systems (seat belts and airbags), electronics, engine components, fastening systems and aftermarket replacement parts and services.
The acquisition offer sent TRW stock up sharply — jumping 8.2 percent — to $98.91, up $7.451 in heavy trading Thursday.
Volkswagen AG is TRW’s biggest customer, accounting for about 25 percent of total sales, followed by Ford Motor Co. at 18.5 percent, according to its annual report. General Motors Co. and Chrysler Group LLC are TRW’s next biggest customers, each accounting for about 10 percent of revenue.
TRW reported first-quarter sales of $4.4 billion, an increase of 5 percent, with net earnings of $199 million or $1.68 per share, versus net earnings of $162 million or $1.29 per share in the prior year period. Excluding special items, TRW reported net earnings of $215 million, or $1.81 per share, an increase of 20 percent compared to last year’s first quarter earnings.
With auto sales booming, auto parts companies are having a strong year, with some struggling to keep up with the demand for parts. Automakers have sought to consolidate the number of suppliers they use — making larger suppliers stronger.
TRW is also benefitting from a growing number of emerging markets which are requiring new auto safety features.
Ford Motor Co., which had 3,300 top tier suppliers in 2004, cut it to 1,500 in 2010, and to 1,250 in 2012; it said in October 2013 it planned to further cut the number to 750.
“TRW achieved a strong start to 2014 as evidenced by the company’s first quarter performance,” said John C. Plant, chairman and CEO in April. “Increasing global demand for TRW’s safety technologies, especially in China where sales increased 16 percent year-on-year, combined with increased vehicle production in each of the company’s major regions, continued to drive profitable growth, solid results and long-term value to our shareholders.”