Japan's
Takata Corp (7312.T),
the firm at the center of the auto industry's biggest ever product recall,
filed for bankruptcy protection in the United States and Japan, and said
it
would be bought for $1.6 billion by U.S.-based rival Key Safety Systems.
In the
biggest bankruptcy of a Japanese manufacturer, Takata faces tens of billions of
dollars in costs and liabilities resulting from almost a decade of recalls and
lawsuits. Its defective airbag inflators have been linked to at least 17 deaths
around the world. Takata Americas, its U.S. arm, filed for Chapter 11
bankruptcy in Delaware on Sunday with liabilities of $10 billion to $50
billion, while the Japanese parent and subsidiaries filed for protection with
the Tokyo District Court early on Monday.
Takata's
total liabilities stand at 1.7 trillion yen ($15 billion), Tokyo Shoko Research
Ltd estimated.
Final
liabilities would depend on the outcome of discussions with carmaker customers
who have borne the bulk of the replacement costs, a lawyer for the company
said.
The filings
open the door to the financial rescue by Key Safety Systems (KSS), a
Michigan-based parts supplier owned by China's Ningbo Joyson Electronic Corp (600699.SS).
In a deal
that took 16 months to hammer out, KSS agreed to take over Takata's viable
operations, while the remaining operations will be reorganized to continue
churning out millions of replacement airbag inflators, the two firms said.
Takata will
also receive a $227 million lifeline from its main lender, Sumitomo Mitsui Banking
Corporation, in the form a debtor-in-possession financing.
KSS would
keep "substantially all" of Takata's 60,000 employees in 23 countries
and maintain its factories in Japan. The deal is meant to allow Takata to
continue operating without interruptions and with minimal disruptions to its
supply chain.
"We
believe taking these actions in Japan and the U.S. is the best way to address
the ongoing costs and liabilities of the airbag inflator issues with certainty
and in an organized manner," Takata CEO Shigehisa Takada said in a
statement.
Takada said
he and top management would resign "when the timing of the restructuring
is set".
His family -
which still has control of the 84-year-old company - likely would cease to be
shareholders.
Jason Luo,
president and CEO of KSS, said in a statement the "underlying
strength" of Takata's business had not diminished despite the airbag
recall, citing its skilled employee base, geographic reach and other safety
products such as seat belts.
The
companies expect to seal definitive agreements for the sale in coming weeks and
complete the twin bankruptcy processes in the first quarter of 2018.
The filings
have, however, not resolved all issues, as Takata still needs to reach
agreements with its carmaker clients on how to divvy up recall costs.
Honda Motor
Co (7267.T), once Takata's biggest customer, said it had reached no final
agreement on responsibilities for the recall. Like other Japanese automakers,
Honda said it anticipated difficulties in recovering the bulk of its claims.
"We are
already beyond the point where there is room for negotiations or
complications," said Julie Boote, analyst at market researcher Pelham
Smithers in London. "(Automakers) know they're not getting the money back
but need the inflators."
UNPRECEDENTED
RECALLS
Takata faces
billions in lawsuits and recall-related costs to its clients, including Honda,
BMW (BMWG.DE), Toyota Motor Corp (7203.T), which have been paying recall costs
to date.
It also
faces potential liabilities from class action lawsuits in the United States,
Canada and other countries.
Global
transport authorities have ordered about 100 million inflators to be recalled,
as the ammonium nitrate compound used to inflate has been found to become
volatile with age and prolonged exposure to heat, causing the devices to
explode.
Industry
sources have said that recall costs could climb to about $10 billion.
Takata
produces roughly one-quarter of all replacement inflators, according to Valient
Market Research, making it a significant supplier for now even as many automakers
have shunned the company for future contracts.
Recall costs
so far have pushed the company into the red for three years, and Monday's
bankruptcy filings marked a low point of a slow and steady downfall of Takata,
which was founded as a textiles company in 1933 that used its weaving
technology to make lifelines for parachutes.
It began
producing airbags in 1987 and at its peak became the world's No. 2 producer of
the safety product. It also produces one-third of all seatbelts used in
vehicles sold globally, along with other components.
The Tokyo
Stock Exchange said its shares would be delisted on July 27. The stock has
collapsed 95 percent since January 2014 as the recalls mounted.
($1 =
111.3000 yen)
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