Ningbo Joyson Electronic Corp.’s foray in Japan is the latest example of Chinese companies’ growing ambitions overseas as economic growth slows at home.
A year ago, Ningbo Joyson Electronic Corp. would have been an unlikely name on a shortlist of candidates to rescue Takata Corp. (IW 1000/616), the Japanese air-bag maker that’s behind the biggest safety recall in automotive history.
The Chinese components supplier, founded by a former TRW Automotive Inc. manager, made less than a quarter of Takata’s annual revenue, employed a workforce that’s less than half the size of its peer, and was about 70 years younger. At the same time, the costs linked to a potential bailout for Takata kept ballooning as additional defective air bags in the millions were recalled. "Takata is too big and the situation it’s facing means huge risks,” Joyson Chief Executive Officer Tang Yuxin said in an interview in March.
On Saturday, Takata said that an offer by Key Safety Systems Inc., the U.S. auto supplier that Joyson acquired for $920 million a year ago, was recommended by the committee hired to identify a sponsor for Takata’s restructuring. Sterling Heights, Mich.-based Key Safety, a distant No. 4 in air bag manufacturing with a global market share of 4% in 2015, is bidding against industry leader, Autoliv Inc. of Sweden.
It’s a coup for Wang Jianfeng, who founded Joyson in 2004 and built the company into one of China’s largest private-sector automotive manufacturers. Joyson supplies parts including control, air-intake and windscreen-washer systems, and counts Volkswagen AG, Ford Motor Co. and General Motors Co. among its customers. Since this decade, the company has gone on an acquisition spree, picking up assets including Preh GmbH, IMA Automation Amberg GmbH and Quin GmbH in Germany, and Evana Automation in the U.S. Along with announcing the acquisition of Key Safety last February, Joyson also took over the automotive division of Germany’s TechniSat Digital GmbH to develop car connectivity, infotainment and navigation systems.
Joyson's Most Audacious Move
But an investment in Takata would be the most audacious for Joyson. In July, Bloomberg News reported that Key Safety was planning a bid for Takata. A deal would not only instantly make Key Safety the world’s second-largest air-bag maker, surpassing Germany’s ZF Friedrichshafen AG, but also give Key Safety greater access to Japanese automakers.
More broadly, Joyson’s foray in Japan is the latest example of Chinese companies’ growing ambitions overseas as economic growth slows at home. Corporate China spent a record $248 billion on overseas deals in 2016. The makers of Pirelli tires, Volvo cars and Weetabix cereals are Chinese owned, as are soccer team Inter Milan, New York’s Waldorf Astoria hotel and the Hollywood studio behind “ Jurassic World.”
To bolster its chances, Key Safety has teamed up with U.S. buyout firm Bain Capital LP, which will take a 30% stake in the consortium, while Japanese air-bag inflator maker Daicel Corp. will be a production partner without equity participation, according to people familiar with the matter. The two partners had earlier submitted a separate joint bid for Takata, people familiar with the matter have said.
If a deal goes through, Key Safety plans to keep Takata’s main businesses, including air bags, seat belts and steering wheels, and will move its Asia headquarters from Shanghai to Tokyo, while keeping the global headquarters in Michigan, said one of the people, who asked not to be identified because the proposal is confidential. Key Safety operates independently under Joyson and directly leads the negotiations with Takata.
Representatives for Key Safety and Joyson declined to comment and said Wang isn’t available for an interview. Daicel spokesman Masahiko Hirokawa declined to comment whether the company is involved in the bid, saying Key Safety is a customer and Daicel will supply to its customers to “meet their increasing demand.” A call to Bain’s offices went unanswered.
While zeroing in on a preferred bidder is a step toward Takata’s restructuring, the company still needs to win over its key customers -- which have a say in the sale process and over whether the supplier will file for bankruptcy protection. Takata has said it doesn’t envision reorganization through a court-led bankruptcy, which would disrupt the supply of parts. However, its shares and bonds have plunged since reports that bidders and carmakers are leaning toward such a step for the company as it will shield them from liabilities. Takata said on Saturday that no decision has been made regarding the company’s restructuring approach.
Takata shares fell by the daily limit, closing 19% lower at 436 yen on the Tokyo exchange on Monday, valuing the company at about $320 million. In its statement, Takata emphasized that Key Safety is a recommendation by the restructuring panel, while no decision has been made on a buyer. It said that stable supply of replacement air bags is the company’s top priority. Joyson added 0.6% in Shanghai, valuing the Chinese company at $4.4 billion. Autoliv dropped as much as % in Stockholm.
Honda Motor Co., the biggest user of Takata air bags, said on Friday it wanted to see a stable supply of the devices and is working toward that goal.
Key Safety is open to the option of letting Takata avoid a court-mandated bankruptcy in Japan, even though the preference is still for a court-led process because it would facilitate quicker and more transparent determination of the air-bag maker’s liabilities, the person said. A decision on whether Takata will file for civil rehabilitation in Japan will likely be taken before a final agreement with the new owner is signed, possibly in March or April, the person said.
A final deal would end another long and difficult chapter for Takata. The Tokyo-based company has admitted to hiding the deadly risks of its exploding air bags, which are linked to at least 17 deaths worldwide, for about 15 years in an agreement to pay U.S. regulators, consumers and car manufacturers $1 billion in penalties. The mounting liabilities from having to replace an estimated more than 100 million air bags have forced the company to seek an acquirer that could get it through the costly restructuring process.
By Ma Jie