Volkswagen AG's Traton commercial truck unit said on Thursday it had offered $35 a share, or $2.9 billion (2.2 billion pounds), for the remaining shares of U.S. truck maker Navistar International that it does not already own.
Traton said its offer was subject to Navistar and Traton reaching a merger agreement. Navistar shares shot up by 50% to just over $36 a share in after-hours trading, suggesting investors expect a potential deal could be richer than Traton's opening offer.
Volkswagen has made its interest in buying the remainder of Navistar clear since acquiring an initial 16.6% stake, which has since grown to nearly 16.8%, in 2016. Before Traton's offer, Navistar shares had been on a downhill run, off nearly 17% since the start of 2020.
Traton will have to win over Navistar's largest shareholder, financier Carl Icahn, whose fund controls 16.9% of Navistar's shares. Icahn and two other activist funds, Mark Rachesky's MHR Fund Management and Gabelli Funds, together own 40% of Navistar's shares, according to Refinitiv data.
Rachesky and another MHR executive, Raymond Miller, sit on Navistar's board, as does a representative of Icahn's interests. Traton Chief Executive Andreas Renschler and the German truck maker's chief financial officer, Christian Schulz, also have seats on Navistar's board.
Navistar, based near Chicago, called Traton's offer unsolicited in a statement and said its board would "carefully review and evaluate the proposal in the context of Navistar's strategic plan for the company."
The company has been restructuring its operations under Chairman and Chief Executive Troy Clarke, and last fall rolled out a new five-year plan called "Navistar 4.0" that aims to increase pre-tax profit margins to 12% by the end of 2024 from just under 8% for the fiscal year ended Oct. 31.
Traton includes the European commercial truck brands MAN, Scania and Volkswagen trucks, but it has lacked a strong North American footprint to compete with Daimler AG's Freightliner operation or Volvo Group's Mack truck business.
Volkswagen floated an 11.5% stake in Traton last June. The subsidiary's shares have trended down from the 27 euro offering price and closed Thursday at 23.01 euros.
Commercial truck makers are under pressure from regulators to develop cleaner, electric vehicles. Navistar and Volkswagen said in 2017 they would collaborate on electric truck development.
The commercial truck sector is also highly cyclical. Heavy-duty class 8 truck orders were down most of last year in North America compared to a year earlier, according to data from ACT Research.