What happened

Shares of Navistar International (NYSE:NAV) opened up more than 50% on Friday after Volkswagen (OTC:VWAGY) offered to buy the 83% of the U.S. truck manufacturer it does not already own. The shares are trading above the offer price, suggesting investors are hopeful Navistar will eventually be sold for a price above VW's initial offer.

So what

Volkswagen's Traton commercial truck unit before markets opened Friday offered $35 per share for Navistar, a premium of 45% to the target's Thursday close. VW first bought into Navistar in 2016, owns about 16.8% of the company, and had long been expected to eventually try to take full control.

Navistar, a maker of trucks, school buses, engines, and military vehicles, acknowledged receipt of the offer and said its board would review the proposal. VW has long been a consolidator of the global trucking market, acquiring Germany's MAN and Sweden's Scania in recent years, but has been eager to build a foothold in the U.S. market to better compete with rivals Daimler AG and AB Volvo.

A truck driver posing from his cab.

Image source: Getty Images.

"As the market continues to evolve, we believe there are compelling strategic and financial benefits to a full combination of Traton and Navistar," Traton CEO Andreas Renschler said in a statement. "The proposed transaction would create a leader in commercial vehicles with global scale and a strong portfolio of leading brands and cutting-edge products, technologies and services while delivering immediate and substantial value to Navistar stockholders."

Navistar in December cut 2020 revenue guidance and said it would reduce global employment by more than 10% in response to weakening demand for heavy trucks and equipment.

Now what

Oh, to be a fly on the wall as negotiations between Navistar and Volkswagen play out! On one side of the table you have veteran dealmaker Carl Icahn and his protégé, Mark Rachesky, who are two of Navistar's largest shareholders and seem unlikely to settle for anything other than a full price. And Volkswagen arguably needs Navistar to gain access to the North American market and become a truly global player.

That said, Navistar is facing a long and brutal road to recovery at a time when U.S. truckers are slowing growth plans and bracing for a potential recession. Although there could be other potential buyers, Volkswagen is Navistar's most obvious partner, especially since the two sides have collaborated since 2017 on component and parts purchases and on electric truck development and other R&D.

My bet is that the two sides will be able to agree to a deal at a price close to where Navistar is currently trading. There's likely not much reason to buy into Navistar right now, as there is only so much higher Volkswagen is willing to go, and there's plenty of downside -- the buyer could walk away and leave Navistar to restructure on its own.