ZF approaches TRW to create No. 2 auto supplier

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

TRW confirmed in a statement Thursday that it has received a preliminary, non-binding proposal, without identifying the potential buyer.  ZF said in an statement that it is in talks with TRW about a possible offer and no decision has been made yet.

Acquiring TRW would allow ZF to compete globally with other major suppliers, such as Continental, with products that use radars and cameras to prevent crashes by alerting a driver of a potential collision.

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, an analyst with Morningstar.

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 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, which had about $35.8 billion in auto-parts sales in 2013, and rank behind Germany’s Robert Bosch.

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 Thursday, giving the company a market value of about $10.6 billion.

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.

TRW, whose biggest customer is Volkswagen, 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 that Fiat 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.

The purchase would be the largest auto-parts takeover since Continental, 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.

ZF ranks No. 9 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $20.4 billion during its 2013 fiscal year. TRW ranks No. 11 on that list with worldwide sales to automakers of $16.1 billion in 2013.

Automotive News staff contributed to this report.

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