US Key Safety Sys­tems set to take over bank­rupt Takata

The Star Early Edition - - BUSINESS REPORT | INTERNATIONAL - Naomi Ta­jitsu and David Shepardson

JA­PAN’S Takata Cor­po­ra­tion, the firm at the cen­tre of the car in­dus­try’s big­gest ever prod­uct re­call, filed for bank­ruptcy pro­tec­tion in the US and Ja­pan, and said it would be bought for $1.6 billion (R20.63bn) by US-based Key Safety Sys­tems (KSS).

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 airbags have been linked to at least 17 deaths around the world.

TK Holdings, its US op­er­a­tions, filed Chap­ter 11 bank­ruptcy in Delaware on Sun­day with liabilities of $10bn to $50bn, while the Ja­panese par­ent filed for pro­tec­tion with the Tokyo District Court early yes­ter­day.

Takata’s to­tal liabilities stand at ¥1.7 tril­lionn (R196.84bn), Tokyo Shoko Re­search es­ti­mated.

Fi­nal liabilities would de­pend on the out­come of dis­cus­sions with car maker 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 KSS, a Michi­gan-based parts sup­plier owned by China’s Ningbo Joyson Elec­tronic Cor­po­ra­tion.

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 re­or­gan­ised to con­tinue churn­ing out mil­lions of re­place­ment airbag in­fla­tors, the two firms said.

The US com­pany would keep “sub­stan­tially all” of Takata’s 60 000 em­ploy­ees in 23 coun­tries and main­tain its fac­to­ries in Ja­pan. The agree­ment 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 US is the best way to ad­dress the on­go­ing costs and liabilities of the airbag in­fla­tor is­sues with cer­tainty and in an or­gan­ised man­ner,” Takata chief ex­ec­u­tive Shige­hisa Takada said.

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 chief ex­ec­u­tive of KSS, said that 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. Honda Mo­tor Com­pany, Takata’s big­gest cus­tomer, said it had reached no fi­nal agree­ment with Takata on re­spon­si­bil­i­ties for the re­call.

Honda said it would con­tinue talks with the sup­plier, but an­tic­i­pated dif­fi­cul­ties in re­cov­er­ing the bulk of its claims.

Re­call costs

Takata faces bil­lions in law­suits and re­call-re­lated costs to its clients, in­clud­ing Honda, BMW, Toy­ota Mo­tor Cor­po­ra­tion and oth­ers which have been pay­ing re­call costs to date.

It also faces po­ten­tial liabilities stem­ming from class ac­tion law­suits in the US, Canada and other coun­tries.

Global trans­port au­thor­i­ties have or­dered about 100 mil­lion in­fla­tors to be re­called.

In­dus­try sources have said that re­call costs could climb to about $10bn.

The am­mo­nium ni­trate com­pound used in the airbags was found to be­come volatile with age and pro­longed ex­po­sure to heat, caus­ing the de­vices to ex­plode.

Costs so far have pushed the com­pany into the red for three years, and it has been forced to sell sub­sidiaries to pay fines and other liabilities.

Founded as a tex­tiles com­pany in 1933, Takata be­gan pro­duc­ing airbags in 1987 and at its peak be­came the world’s No 2 pro­ducer of the safety prod­ucts.

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. – Reuters

Takata faces bil­lions in law­suits and re­call-re­lated costs to its clients.

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