Shares of Veoneer (VNE) - Get Veoneer, Inc. Report soared in premarket trading Friday after the automotive safety electronics company was acquired by Magna International (MGA) - Get Magna International Inc. Report for $3.8 billion in cash or $31.25 a share.
Aurora, Canada-based Magna International said the acquisition builds on its strengths as a subsystem designer and manufacturer for original equipment manufacturers of vehicles and light trucks.
"Veoneer's complementary technology offerings, customer base, and geographic footprint make it an excellent fit with our ADAS business, and the acquisition strengthens our global engineering and software development talent base," said Magna International CEO Swamy Kotagiri.
Magna International expects the acquisition to make the combined company an industry leader in active safety solutions. Following the closing of the deal, Veoneer will be combined with Magna International's electronics operating unit.
The company expects annual run-rate synergies of about $100 million by 2024 from the deal, which was unanimously approved by both Veoneer and Magna's boards.
Analysts at KeyBanc said the deal was "widely unexpected" and has "lackluster earnings/margin dilution aesthetics." The firm rated Veoneer sector weight and Magna International overweight.
Meanwhile, analysts at RBC upgraded Veoneer's stock to sector perform from underperform and raised the price target on the shares to $31.25 from $19.
The firm's concern on Veoneer had been around its business strategy and its ability to get to break-even, self funding status, according to RBC analyst Joseph Spak.
Jefferies maintained its hold rating, saying that the deal makes sense for both companies and positions them to "better compete with active safety market leaders."