By Euan Rocha and Allison Martell
TORONTO/FRANKFURT (Reuters) - Canadian automotive parts maker Magna International Inc (TO:MG) said on Thursday it would buy privately-owned German car parts maker Getrag for 1.75 billion euros (1 billion pounds), in a bid to expand its automotive transmission systems business.
The move is also part of the plan by the world's No.3 autos supplier to win market leadership in certain key vehicle parts. Earlier this year, Magna sold most of its automotive interiors unit to Spain's Grupo Antolin for $525 million.
Magna Chief Executive Don Walker said Magna had identified transmissions as a strategic priority, in part because improved powertrains will be crucial to meeting fuel economy targets set by governments around the world.
"Transmissions are highly engineered products with long life cycles, which makes them difficult to commodities," he said on a conference call.
Walker noted Untergruppenbach-based Getrag is a technology leader in the product area and indicated its joint venture relationships, especially those in China were an attraction.
Getrag is a joint-venture partner of Ford Motor Co (N:F) and counts BMW (DE:BMWG), Daimler (DE:DAIGn), Renault SA (PA:RENA) and Volvo among its clients. It also has significant tie-ups with Chinese auto makers Jiangling Motors Corp (SZ:000550) and Dongfeng Motor Group (HK:0489).
Getrag and Magna had been in on-and-off talks over a combination for 8-9 years and talks intensified after a 2012 review of how Getrag wanted to finance itself going forward, Getrag CEO Mihir Kotecha said on a conference call, adding he expected the deal to close by year-end.
While talks about a potential stock market listing as well as conversations with other car parts makers also took place, Getrag and its family owners decided Magna would be not only a financially strong partner, but also make a good technical and geographical fit, he added.
A source familiar with the matter said after the close of the deal Getrag's brand and plants would be maintained and no lay-offs were planned, with savings expected to come from areas such as joint procurement.
Getrag, which has about 13,500 employees and operates 13 manufacturing and 10 engineering centres in nine countries in Europe, Asia and North America, had consolidated sales of about 1.7 billion euros ($1.85 billion) in 2014.
"On first glance, Getrag appears to be a solid product fit for Magna, coming at a reasonable price," said RBC analyst Steve Arthur in a note to clients.
The deal, which including debt and pension liabilities has an enterprise value of about 2.45 billion euros ($2.67 billion), is expected to close near the end of 2015.
In a note, Wells Fargo (NYSE:WFC) analyst Richard Kwas said he thought the deal potentially lessened the odds of Magna being a buyer of Johnson Controls Inc's (N:JCI) seating business.
Although Magna sold off its interiors business, it retained its seating business. In recent weeks, some analysts had expected it to bid for the Johnson Controls seating operations, putting its value at around $8 billion.