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Truckmaker CNH hopes split drives consolidation


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Financial Times  /  January 2, 2020

CNH, the truck and tractor maker backed by Italy’s Agnelli family, hopes that a split of the business into two companies will drive consolidation across its two sectors, the chief executive said.

Hubertus Mühlhäuser said the business would be open to deals once it had spun out truckmaker Iveco and its other road-going brands into a new entity in early 2021.

“One of the reasons why we create two pure plays, one an off-highway, one an on-highway, is of course to be able to actively contribute to industry consolidation,” he said. “Whether we’re going to be the consolidator or consolidatee remains to be seen.

“We have not yet seen a coming together of larger Asian players at large scale with the European or American players . . . I think that’s something to come in the coming years.”

The truck markets and the agricultural equipment sectors are facing upheaval, with the need for investments into electric propulsion and autonomy coupled with tough trading conditions as haulage firms and farmers delay orders because of the global trade war.

Yet the two businesses have very limited spending overlap.

“We looked at that from the synergies and the synergies were not there,” said Mr Mühlhäuser.

CNH will spin out Iveco, Iveco Bus and the Heuliez Bus units, as well as its power train business, in an “on highway” division, which has combined revenues of about $13bn.

It will keep the tractor, agricultural and construction equipment arm, which has revenues of about $16bn, with the aim of raising the values of the two companies by ending CNH’s status as a mini-conglomerate.

The split, which will take place in 2021, is part of a strategy intended to more than double profit margins to 10 per cent by 2024.

The move, announced at an investor day in September, follows a tradition set by CNH’s previous owner Fiat Chrysler, which is also backed by the Agnelli family through their Exor holding company.

FCA, which was formed by the merger of Fiat and Chrysler, spun out CNH in 2011, and subsequently also listed Ferrari, and sold component business Magneti Marelli.

Shorn of non-core businesses, FCA is attempting to merge with France’s PSA to create the world’s fourth-largest carmaker, allowing the two auto groups to pool investments into self-driving technology and electric driving.

Analysts expect CNH’s remaining tractor arm to have a higher value once divided from the truck division, because agricultural equipment businesses such as John Deere tend to attract higher valuation multiples than truckmakers.

Elliott, the activist hedge fund, has built up a lower than 3 per cent stake in CNH, acquiring the shares before the announcement. Mr Mühlhäuser said they were “very supportive” of the company’s strategy.

CNH opted to spin the company out rather than listing the new truck business in an initial public offering, in part because of the experience Volkswagen faced with its own truck division Traton, which houses the Man and Scania brands.

The Traton listing was delayed once, and finally launched at a lower value in June.

Separating the two CNH companies will allow each side to focus on its challenges, from countering slowing farmer orders because of the trade war, to the need for electric investment into haulage vehicles.

Iveco is preparing to launch a hydrogen-powered truck and a battery electric vehicle, having invested in start-up Nikola to help it with both technologies.

Its off-highway division will focus on the agricultural market, which is under pressure as farmers delay replacing older fleet.

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Interesting, but not unexpected.  Muhlhauser's comment about being a consolidator or consolidatee is wise, and shows that Iveco is flexible.  

I wonder about the Asian truck builders too.  Volvo's sale of UD to Isuzu seems to be a step backward, and I really don't think the Japanese builders are all that eager to consolidate with any American or European builders.  Isuzu's on again-off again relationship with GM is about as far as I see any of that going for the foreseeable future.

China is anyone's guess at this point.


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Perhaps CNH will have a low enough value that Ford could buy it and get back in that segment? I've noted that Ford zealously guards their trademarks to the point of requiring toy tractor makers license models they haven't built in decades, perhaps Ford has future plans for those brands?

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Looks like CNH has a higher valuation, might take $15 billion to buy that. Iveco (the truck operation) could probably be bought for less than $5 billion, for that you get conventional and cabover trucks, engines, and some plants to build them. Sounds like a lot, but probably less than it would cost Ford to replicate the whole operation.

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