Joyson nears troubled Takata

Key Safety's plan for Japanese company gets rescue panel's nod

A year ago, Ningbo Joyson Electronic Corp would have been an unlikely name on a shortlist of candidates to rescue Takata Corp, 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 executive, 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 CEO Tang Yuxin said in an interview in March 2016.

Takata recently announced that an offer by Key Safety Systems Inc, the US 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, Michigan-based Key Safety, a distant No 4 in air-bag manufacturing with a global market share of 4 percent in 2015, was selected over 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 US. 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.

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 rate 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 Legendary Entertainment, the Hollywood studio behind Jurassic World.

In its statement on Feb 4, Takata emphasized that Key Safety is a recommendation by the restructuring panel, while no decision has been made. It also said that stable supply of replacement air-bags is the company's top priority.

To bolster its chances, Key Safety has teamed up with US buyout firm Bain Capital LP, which will take a 30 percent stake in the consortium, while Japanese air-bag inflater 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 outside regular business hours 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 reiterated that no decision has been made regarding the company's restructuring approach.

Joyson shares have gained 12 percent since the takeover of Key Safety, valuing the Chinese company at $4.4 billion. Takata has a market capitalization of about $400 million.

Honda Motor Co, the biggest user of Takata air-bags, said on Feb 3 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.