Freightliner, Western Star first held acquisition talks in 1998

Freightliner, Western Star first held acquisition talks in 1998

By Neil Versel

KELOWNA, B.C., Aug 23 (SNS) — Freightliner LLC, a leading producer and seller of commercial trucks and buses in North America and a unit of major German-American auto-maker DaimlerChrysler AG (DCX), first discussed the possibility of acquiring assets of low-volume truck-maker Western Star Trucks Holdings Ltd. (WSH) in September 1998, 22 months before Western Star formally agreed to a $670.0 million (Canadian) takeover, Stark’s News Service Interactive has learned.

In documents filed with Canadian securities regulators this month, Western Star disclosed that the two firms had "preliminary discussions" in September and October 1998 about the possibility of Freightliner acquiring Western Star subsidiaries Orion Bus Ltd. and British truck-maker ERF (Holdings) plc. The talks actually began prior to the November 1998 merger of Freightliner parent Daimler-Benz AG with U.S. auto-maker Chrysler Corp. that created DaimlerChrysler.

Western Star said that DaimlerChrysler representatives performed limited due diligence on ERF in March 1999. Western Star later sold ERF to German truck-maker MAN AG for $156.0 million (Canadian) in cash and $108.0 million (Canadian) worth of ERF liabilities.

In May 1999, the two companies began to "review the possibilities" of merging Freightliner’s Sterling Truck Corp. unit with Western Star’s products, "whether through a merger or some form of joint venture," according to the company documents. Freightliner first expressed its desire to take over all of Western Star’s North American truck operations at a November 18, 1999, meeting involving the chief executives of both firms.

As Western Star was negotiating the sale of ERF, Freightliner submitted a preliminary takeover proposal on January 19, 2000. As reported, sources told SNS Interactive that Western Star last January 31 abruptly ended negotiations for government assistance to build a new Orion Bus assembly plant near an existing facility in Oriskany, N.Y.

Four days after Western Star cut off talks with officials in New York, representatives of both firms met to "consider their respective approaches" toward negotiating a deal, according to the filing. Western Star and DaimlerChrysler agreed to sign a confidentiality agreement last February 17 and due diligence took place last April.

At a May 14 meeting in Los Angeles, Freightliner President James L. Hebe gave Western Star Chairman Terrence R. Peabody a specific proposal to acquire Western Star’s North American truck and bus-making operations. DaimlerChrysler’s Board of Management was set to approve a takeover last June 20, but a run-up in the value of Western Star stock on reports that a deal was imminent led to an additional month of negotiations.

As reported, DaimlerChrysler agreed last July 19 to acquire Western Star for $42.00 (Canadian) per share, or a total of $670.0 million (Canadian). The price corresponds to an estimated $28.45 per share, or $453.8 million, in U.S. currency.

The two truck-makers further disclosed that a company controlled by Mr. Peabody agreed to purchase Western Star Australia Pty. Ltd., the firm’s Australian subsidiary, for $39.0 million (Canadian). Mr. Peabody’s company will retain distribution rights for Western Star and MAN trucks in Australia, New Zealand and the Asia-Pacific region.

Western Star purchased the Australian holdings of MAN as part of the ERF sale agreement last March.

As reported, Western Star shareholders will meet in Vancouver, B.C., this September 18 to vote on the proposal. Pending shareholder and regulatory approval, Western Star will become a part of Freightliner but retain its own brand identity. Orion Bus will join Freightliner’s specialty vehicle-making division.