Takata seeks bankruptcy protection, sells assets to US-based rival for $2b

Takata CEO Shigehisa Takada (left) with other executives at the end of a press conference in Tokyo yesterday. Mr Takada said he and top management would resign once the takeover was completed.
Takata CEO Shigehisa Takada (left) with other executives at the end of a press conference in Tokyo yesterday. Mr Takada said he and top management would resign once the takeover was completed.PHOTO: AGENCE FRANCE-PRESSE

TOKYO • Japan's Takata Corp, the firm at the centre of the auto industry's biggest product recall, has filed for bankruptcy protection in the United States and Japan, and yesterday said it would be bought for US$1.6 billion (S$2.2 billion) by US-based rival Key Safety Systems.

Takata chief executive Shigehisa Takada, whose grandfather started the company in 1933 as a textile- maker, said he and top management would resign once the takeover was completed.

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 US arm, filed for Chapter 11 bankruptcy in Delaware on Sunday with liabilities of US$10 billion to US$50 billion, while the Japanese parent and subsidiaries filed for protection with the Tokyo District Court early yesterday.

Takata's total liabilities stand at 1.7 trillion yen (S$21 billion), Tokyo Shoko Research estimated.

Final liabilities would depend on the outcome of discussions with 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.

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.

Takata will also receive a US$227 million lifeline from its main lender, Sumitomo Mitsui Banking Corporation, in the form of 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 US is the best way to address the ongoing costs and liabilities of the airbag inflator issues with certainty and in an organised manner," Mr Takada said in a statement. Mr Jason Luo, president and CEO of KSS, said in a statement 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.

The companies expect to seal definitive agreements for the sale in the 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 clients on how to divide recall costs.

Honda Motor, once Takata's biggest customer, said it had reached no final agreement on responsibilities for the recall. Like other Japanese carmakers, 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 Ms Julie Boote, analyst at market researcher Pelham Smithers in London. "(Carmakers) know they're not getting the money back but need the inflators."

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

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

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on June 27, 2017, with the headline 'Takata seeks bankruptcy protection, sells assets to US-based rival for $2b'. Print Edition | Subscribe