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Why Veoneer Stock Soared 56% Today

The Motley Fool logo The Motley Fool 7/23/2021 Rich Smith
graffiti on a wall: Why Veoneer Stock Soared 56% Today © Provided by The Motley Fool Why Veoneer Stock Soared 56% Today

What happened

Shares of Veoneer (NYSE: VNE), the Swedish maker of radar systems, cameras, and night driving assistance electronics for automobiles, exploded 56.5% higher in 1:45 p.m. EDT trading Friday. This was despite the company having just reported what was -- in all honesty -- kind of an underwhelming quarter in its Q2 2021 earnings report.

And the reason for that is Magna International (NYSE: MGA).

a painting in a parking lot painted with graffiti: Wall painting depicts a large yellow fish eating a smaller yellow fish. © Getty Images Wall painting depicts a large yellow fish eating a smaller yellow fish.

So what

For fiscal Q2, Veoneer reported an $0.89 per share loss on sales of $398 million -- two cents better profits than analysts had forecast, but revenue nearly 2% shy of consensus estimates. But here's why investors don't care about that at all: Yesterday evening, long after markets closed for the day, Canada's Magna International announced that it will acquire its auto parts-making peer in a deal valued at $3.8 billion.  

Magna's bid for Veoneer comes to $31.25 per outstanding share, or $3.3 billion total, payable in cash. Magna will also assume about $500 million in Veoneer's debt, raising the total value of the transaction to the aforementioned $3.8 billion.

Now what

The companies say that "the transaction has been unanimously approved by the Veoneer and Magna boards of directors," although their shareholders still need to approve it. Assuming the deal does get done, though, it will result in a combined company that is "a global leader in [advanced driver assistance systems] with pro forma 2020 ADAS sales of $1.2 billion and capabilities." Magna likes the deal because, in a world that seems destined to be dominated by electric and autonomous cars, it will mean "greater ADAS content per vehicle for Magna" (i.e., more revenue going to Magna for every car sold by an automotive company that it supplies).  

Veoneer shareholders should like the deal because... well, because it gives them a 56% one-day profit instead of the loss that today's earnings might otherwise have caused. 

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Magna Int'l. The Motley Fool has a disclosure policy.

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