The Japanese airbag maker reeling from the biggest and most costly car recall in history is now at the centre of a messy takeover battle that could put the 83-year-old company on a path towards bankruptcy.
The fate of Takata will rest heavily on Honda, Ford, General Motors and other carmakers that will gather in New York on Tuesday and Wednesday to discuss options for an outside investor to help the company replace potentially defective airbags in more than 100m vehicles.
Some of the inflators Takata manufactured for these airbags have exploded and sprayed shrapnel in people’s faces, and the episodes have been linked to at least 17 deaths and more than 100 injuries worldwide.
The safety scandal has plunged lossmaking Takata into crisis, crippling a family-run business that while little known on the global stage has made acquisitions since the 1980s to become a supplier of airbags, seat belts and steering wheels to almost every big carmaker in the world.
Safeguarding Takata’s future, therefore, matters to many of the world’s leading carmakers, not least because Honda, Toyota, Volkswagen and nine other carmakers are footing the estimated $10bn-plus cost of recalling their vehicles with faulty Takata airbags.
“The first priority for carmakers is to keep Takata’s business functioning. Otherwise, they know there will be grave consequences for each and every one of them,” says Christopher Richter, an analyst at CLSA.
The sale of a controlling stake in Takata has turned into a complex process because of the need to involve carmakers that have very different views on the most suitable investor to whom to entrust the company’s turnround.
Their influence is shown by how the automobile manufacturers will review informal offers of between $1bn and $3.5bn for this controlling stake in Takata at the New York meeting, say people close to the auction.
The $3.5bn offer has been made by a consortium of Japanese airbag-inflator maker Daicel and private equity firm Bain Capital, adds one of these people. Both Daicel and Bain declined to comment.
The other four bidders are Autoliv, a Swedish airbag maker; Flex-N-Gate, a US carparts supplier; Key Safety Systems, an airbag manufacturer owned by China’s Ningbo Joyson Electronic; and KKR, another private equity firm.
The two bidders favoured by most carmakers and Takata’s lenders, led by Sumitomo Mitsui Financial Group, are the Daicel-led consortium and Autoliv, say two people close to the sales process.
Daicel is preferred on expectations the company would not break up Takata’s businesses, while Autoliv is liked because of its experience as a global manufacturer.
Takata is aiming to have a shortlist of two to three bidders by mid-November, and then finalise a deal by the end of the year.
One bidder says there is confusion about who will have the final say on the choice of Takata’s investor. “There is no clear answer,” says the bidder.
But this complaint pales in comparison with how Takata’s relations with certain carmakers, led by Honda, its biggest customer, were badly strained last year by the scandal.
In November the National Highway Traffic Safety Administration, the US transportation regulator, imposed a record fine on Takata, saying its inflators containing ammonium nitrate propellant had a tendency to explode in humid conditions.
The watchdog ordered a recall of US vehicles with Takata inflators that lack a chemical known as desiccant, used to keep the ammonium nitrate dry. Jefferies analysts calculate there are 126m vehicles worldwide with this type of inflator, and estimate the recall cost at ¥1.3tn ($12.6bn).
But the US recall could eventually be expanded to vehicles with Takata’s ammonium nitrate inflators that do have desiccant, which could add a further 75m cars worldwide to the recall and increase the cost by ¥810bn.
Amid this uncertainty over the scandal’s scope, there has yet to be a definitive verdict from regulators or academics as to exactly why Takata’s inflators have a propensity to explode in humid conditions.
This has stalled talks between the company and the carmakers on who should ultimately pay the recall costs. Most analysts expect the expense to be split between Takata and the auto manufacturers, but there are likely to be heated discussions on the precise breakdown.
Tensions could also be exacerbated by how several of the bidders for Takata are weighing the case for use of a bankruptcy procedure before buying a controlling stake.
One option could be a Chapter 11 bankruptcy protection filing by Takata’s US arm. This could enable Takata to detach its good assets from the bad ones, so a new US entity takes responsibility for replacing the faulty airbags, say people involved in the sales process.
Another option is for the Takata group to seek bankruptcy protection in Japan, but this could be painful for the company’s lenders because they risk not being able to recover their money.
Both bankruptcy options would be aimed at reducing Takata’s costs of replacing the faulty airbags — and imply the carmakers foot most of the bill.
Takata declined to comment on bankruptcy options. The company said this month it had established a steering committee, involving outside experts, to develop a “comprehensive restructuring plan”, adding Takata’s “most important operational commitment remains to ensure a stable and uninterrupted supply to automaker customers”.
Shigehisa Takada, Takata’s reclusive chief executive and grandson of its founder, is expected to resign once the company secures a new investor.
In spite of the scandal the carmakers are keen to see Takata survive, partly because they want a choice of airbag suppliers.
The market is dominated by just three manufacturers: Autoliv, TRW, part of Germany’s ZF, and Takata.
Takata also has technology such as sensors that are increasingly used in so-called advanced driver assistance systems.
“Takata and its technology portfolio are very important,” says one banker who specialises in automotive deals but is not involved in the Takata sales process. “Despite the scandal, it’s not going to dissolve and disappear into nothing. There is too much intellectual property built around this area.”
Additional reporting by Peter Campbell in London and Patti Waldmeir in Chicago
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