China's Joyson Investment Holding Co. Ltd. will take a majority stake in German auto supplier Preh GmbH, creating a global firm worth an estimated 500 million euros ($721.8 million).
The agreement, announced Friday, follows up on a joint venture between the two firms to supply the market in China, and will give Ningbo-based Joyson a 74.9 percent stake in Preh, which produces climate control, drive systems, sensors and instrument clusters for customers such as the Volkswagen Group.
The companies did not say how long they expect it will take for the deal to gain approval from government authorities.
Preh, based in Bad Neustadt, Germany, said in a news release that its current majority partner, Deutsche Beteiligungs AG, will retain a 25.1 percent stake while existing Preh management will control and expand the company's global activities from Germany.
Preh has in-house injection molding and tooling operations.
"Preh remains Preh," CEO Michael Roesnick said in the release. "Our company is driven by its unique sense of innovation as well as the outstanding commitment by our employees."
With Joyson, though, Preh will "substantially improve its market position" and open new market opportunities, especially in China.
China is quickly becoming a more important market for Western automotive suppliers, according to one industry analyst.
"Everyone can see which way the global automotive industry is headed, and it's headed for Asia, so to have a permanent base there, especially in China, is going to be very important," said Tim Dunne, a director with auto industry analysts JD Power and Associates.
J.D. Power's own forecasts estimate that China alone will account for one third of global auto sales in 10 years. Both General Motors Co. and Ford Motor Co. have their international presidents based in Shanghai, he noted. Ten years ago, they would have been based in Europe or Japan.
But while the auto base is turning to China, Chinese suppliers still are not as sophisticated as counterparts in North America and Europe. Dunne said that has prompted government initiatives to find ways to improve technology.
Preh's capabilities, both in electronic controls and multi-shot processing, bring key technological expertise to the deal, while Joyson has access to capital.
Joyson's holdings include both real estate and manufacturing, with under-the-hood components made by both Ningo Joyson Automotive Components Ltd. and Changchun Joyson Automotive Components Ltd. and auto entertainment products made by Bosen Corp.
Joyson bought Huade Plastics Corp. in 2009.
Preh's international holdings include production in Mexico, Germany, Portugal and Romania.
The two firms first entered a joint venture in August 2010 to combine forces in China. The combined force of the companies' technical and capital access will allow it to reinforce its market in Asia, Europe and North America, Preh executives said.