UPDATED: 7/30/14 4:22 pm ET - adds stock close
NEW YORK/FRANKFURT (Reuters) -- Germany's ZF Friedrichshafen AG is in advanced talks to acquire TRW Automotive Holdings Corp. for nearly $12 billion, in a deal that would create an automotive supply powerhouse, people familiar with the matter told Reuters today.
ZF, which is lining up roughly 10 billion euros ($13.4 billion) in debt financing, is in talks to pay around $105 per TRW share, the people said, just above its current stock price and valuing the company at close to $12 billion based on shares outstanding.
A deal at that price level would represent a multiple of about 7.5 times TRW's estimated earnings before interest, tax, depreciation and amortization in 2014, making it one of the most expensive takeovers in the auto parts sector, the people said today.
Shares of TRW, which have been trading near all-time highs after surging on expectations of a takeover in recent weeks, closed down almost 3 percent to $101.75 today. The stock traded as low as $1.38 at the height of the U.S. auto industry crisis in 2009.
Discussions are continuing and the two sides have yet to negotiate a final price and other terms, the people said. The companies are hoping to reach an agreement in a matter of weeks but there is no guarantee one will be struck, the people added.
All the people asked not to be named because the discussions are private. Representatives for ZF and TRW declined to comment.
TRW CEO John Plant earlier this week declined to update investors on the negotiations -- first reported by Bloomberg on July 10 -- when discussing TRW's second-quarter earnings report on a conference call.
Citigroup and Deutsche Bank are advising ZF and providing a bridge loan facility to back the proposed acquisition, according to the people familiar with the matter. The banks declined to comment.
If completed, the deal would create the world's second-largest auto supplier in terms of revenue and it would be the largest supplier takeover in seven years.
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.
ZF, a major provider of steering systems and powertrains, would get a leading maker of automotive safety products, such as brakes and air bags.
TRW said July 10 it hired Goldman Sachs Group after receiving a preliminary takeover approach. ZF later confirmed it was in early-stage buyout discussions.
TRW, based near Detroit in Livonia, Michigan, makes airbags, electronics, and braking and steering equipment for cars globally. It sells to nearly all major automakers, including Ford Motor Co and General Motors Co.
The company counts Volkswagen AG as its largest customer and gets about 40 percent of its revenue from Europe.
Privately owned ZF Friedrichshafen, which supplies chassis components to companies including Audi AG and BMW, generates about half of its revenue in Europe.
The proposed combination would likely face regulatory scrutiny and is expected to require some divestitures in areas such as steering components, according to one of the people familiar with the matter.
Automotive News staff contributed to this report.