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VW has extended its reach into the US truck manufacturing market after signing off on a $3.7bn deal for its heavy-truck unit Traton to acquire Navistar International.

Navistar, the maker of International branded trucks, is a major player in North America.

The deal will allow Traton, which makes Scania and MAN vehicles, to expand beyond sales in Europe and Latin America and lay down a global challenge to rivals Daimler and Volvo.

VW will provide Traton with a 12-18-month loan of €3.3bn ($3.9bn) to fund the transaction and Traton will pay $44.50 a share for the 83% of Navistar stock it does not own. The deal is expected to close by mid-2021.

Traton chief executive Matthias Gründler said the deal expands the firm’s reach “across key truck markets worldwide, including scale and capabilities to deliver cutting-edge products, technologies and services to our customers.

“Together, we will have an enhanced ability to meet the demands of new regulations and rapidly developing technologies in connectivity, propulsion and autonomous driving for customers around the world."

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Navistar president and chief executive Persio Lisboa said: “This transaction builds upon our highly collaborative and successful strategic alliance and further enhances the growth trajectory of the combined company, while delivering immediate and substantial value to our shareholders.

“We look forward to continuing to work with the Traton team to create opportunities for our employees and provide an outstanding experience for our customers and dealers through best-in-class products, services and technologies.”

Gunnar Kilian, member of the management board of Volkswagen AG and responsible for the Truck & Bus division, added: “Volkswagen is Traton’s biggest shareholder. The agreement is thus an important milestone for Volkswagen because it underpins our strong strategic commitment to continue driving growth also during the ongoing challenging economic climate.

“The acquisition of Navistar will significantly leverage Traton’s positioning in North America, one of the biggest and most profitable markets for heavy trucks.

“Together, the companies can enhance scale and reach in key markets as well as create further synergies.”