By Edward Taylor
FRANKFURT (Reuters) - Volkswagen <VOWG_p.DE> has agreed an engine technology and purchasing alliance with truckmaker Navistar <NAV.N> and will buy a 16.6 percent stake in the U.S. firm for $256 million, as global truck makers face steep development costs to meet global anti-pollution rules.
The deal is expected to help both sides cut costs, give Volkswagen's trucks business a long-desired foothold in North America and provide a source of new engines for Navistar, which has been looking for a partner ever since its heavy-duty diesel truck engine failed get approval from U.S. regulators in 2010.
Volkswagen's next generation engine for MAN <MANG.DE> and Scania [SCVSA.UL] trucks will be adapted to suit Navistar's U.S. trucks at a time when global anti-pollution rules are converging, Volkswagen Trucks Chief Executive Andreas Renschler said on Tuesday.
"If emissions regulations are coming closer together, you can address this kind of technology question with the same concept, transmission and after-treatment system," Renschler said in a news conference call to discuss the deal.
Volkswagen can lower development costs through increased economies of scale, adding Navistar's 84,000 annual sales to its own 179,000 annual truck and bus sales.
To cement the new alliance Volkswagen will pay $15.76 a share for 16.2 million new Navistar shares, a 12 percent premium to Navistar's closing price on Sept. 2, the two groups said.
Volkswagen Truck & Bus will hold Navistar shares for a minimum of three years and top-level executives from both parties will align product development and procurement processes, the companies said.
Volkswagen could raise its stake in Navistar at a later point, Renschler said, adding that "all options are open" with Volkswagen's ambition to build a global trucks champion.
The pact was welcomed by analysts who said it could also boost VW's chances of eventually spinning off its trucks arm.
"A more global company with exposure to the profitable North American market will make for a better story should VW look to IPO its trucks business in the future," Arndt Ellinghorst, analyst at Evercore ISI said in a note.
VW shares were down 0.3 percent at 124.4 euros a share at 1025 EST, when the German DAX <0#.GDAXI> share index was down 0.05 percent. Navistar shares shot up on the deal, trading 56 percent higher at $22.016 a share.
The alliance, first reported by Reuters on Monday, will see the creation of a joint venture for procurement, which Navistar said would help it realize synergies worth at least $500 million over the first five years.
Pooling VW and Navistar's procurement will create economies of scale for Volkswagen Truck & Bus's three major truck brands - Scania, MAN and Volkswagen Caminhões e Ônibus - in addition to Navistar's own International and IC Bus brands.
In a statement, Troy Clarke, President and CEO, Navistar, said: "Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies."
By year five it expects the alliance to generate synergies worth at least $200 million a year for Navistar, which could rise further as the companies continue to introduce technologies from the collaboration.
Navistar said synergies will come from collaboration on procurement and technology, rather than job cuts.
U.S. regulators last month announced new environmental standards designed to cut greenhouse gas emissions from medium and heavy-duty trucks by up to 25 percent by 2027, adding pressure on Lisle, Illinois-based Navistar to seek a technology partner.
The financial burden of developing next-generation engines to meet new emissions standards is forcing several vehicle makers to pursue partnerships and technology deals.
In May Nissan <7201.T> took a 34 percent stake in Mitsubishi <7211.T>, while in 2013 Aston Martin agreed to sell a 5 percent stake to Mercedes-Benz parent Daimler <DAIGn.DE> in exchange for delivering next-generation engines and electronics that meet the latest emissions rules.
(Additional reporting by Joe White, Jan Schwartz and Maria Sheahan; Editing by Mark Potter, Greg Mahlich)