Japanese airbag maker Takata files for
bankruptcy, gets U.S. sponsor
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[June 26, 2017]
By Naomi Tajitsu
TOKYO (Reuters) - 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
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
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
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Takata Corp. Chairman and CEO Shigehisa Takada attends a news
conference after its decision to file for bankruptcy protection in
Tokyo, Japan, June 26, 2017. REUTERS/Toru Hanai
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."
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
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
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
($1 = 111.3000 yen)
(Reporting by Naomi Tajitsu; Additional reporting by David
Shepardson on Washington D.C., Tom Hals in Wilmington, Delaware and
Maki Shiraki and Tom Wilson in Tokyo, Writing by William Mallard,
Editing by Stephen Coates and Himani Sarkar)
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