ZF bucks trend in bid for TRW

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DETROIT -- In an era in which many suppliers are shedding noncore business lines, Germany's ZF Friedrichshafen AG is looking to bulk up by bidding for TRW Automotive Holdings Corp.

Last week ZF confirmed it has made a nonbinding proposal to acquire TRW, of suburban Detroit.

If the deal goes through, the combined companies would be a diversified powerhouse, second only to megasupplier Robert Bosch GmbH.

ZF, best known for automatic transmissions, also makes steering and suspension components, clutches and shocks. Since being founded by Ferdinand von Zeppelin in 1915 to make gears for German blimps, ZF has stuck close to the literal meaning of its name, Zahnradfabrik, German for "gear factory."

The company does not have extensive electronics in its product range. ZF derives more than half of its revenue from Europe and just under 20 percent from North America.

TRW, a major car safety equipment supplier, produces steering, brakes, occupant restraint systems and electronic safety and security systems. More than a third of TRW's revenue is generated in North America, while 41 percent comes from Europe.

The company has been driving hard recently to develop technologies to enable automated driving.

So a combined ZF and TRW would be a top competitor in three hot businesses for suppliers now: fuel-efficient powertrains, active safety and automated driving.

The two companies generated a combined $36.58 billion in business with automakers last year. Together they would have ranked behind only No. 1 Robert Bosch, based on data compiled by the Automotive News Data Center. Bosch had $40.18 billion in global automotive revenue in 2013.

"By controlling the brakes, steering, safety and ADAS [advanced driver assistance systems] with some level of software expertise, TRW controls all the right parts of the car needed for autonomous driving," Morgan Stanley analyst Ravi Shanker said in a statement.

"By bringing transmission, drivetrain, chassis and suspension know-how into the mix, there are few parts of the car, either mechanical or electronic, that will be outside the purview of a ZF+TRW combination" aside from the engine, he added.

Shanker told Automotive News he would be surprised if ZF sold off parts of TRW if the deal is completed.

"If they just wanted ADAS, they could have approached TRW just for that business, either to buy or to [create] a joint venture," he said. "Our view is that ZF may want to become a large diversified supplier with the ability to control all the critical parts of the car as we enter an autonomous world."

ZF is headed by Stefan Sommer, 51, who has been CEO since June 2012. Neither ZF nor TRW commented on the bid last week.

The potential deal contrasts recent supplier moves to increase profits by shedding marginal business units. Visteon Corp., for example, recently sold its interior business, while Johnson Controls sold its HomeLink system and set up a joint venture with a Chinese partner for its interiors business.

Tenneco Inc., a manufacturer of exhaust systems, emission control equipment and shock absorbers, is following developments.

Said Tim Jackson, executive vice president of technology, strategy and business development: "ZF is a competitor to Tenneco in the ride control business. TRW is actually a critical supplier partner in the clear air business, so we are obviously going to watch things closely."

You can reach Richard Truett at rtruett@crain.com.


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