FRANKFURT: Foxconn’s two-year pursuit of a stake in a unit of German auto supplier ZF Group stalled last month due to a substantial mismatch in valuation expectations and a higher-than-estimated debt pile, according to documents seen by Reuters.
The findings from the Taiwanese firm’s due diligence were circulated days before ZF Group said in October that it would abandon its plans to spin off its powertrain technology unit, known as Division E.
The unit produces electric, conventional and hybrid systems for the automobile sector. Foxconn was considering buying a stake in it as part of its expansion in the electric vehicle (EV) business.
Now, ZF Group is in talks with Foxconn and other interested parties about partnerships covering specific products in Division E, according to a source at ZF with direct knowledge of the matter. He could not be named as he is not authorised to speak to the media.
The due diligence findings, the September stalling of the deal and ZF Group’s new plans with Foxconn are being reported for the first time.
Foxconn’s plans stalled after due diligence estimated Division E’s value at 1.5bil (US$1.7bil) to 2.5bil, lower than a previous estimate of 3.5bil, according to a document prepared by JPMorgan for Foxconn as its deal adviser.
The equity value of Division E, more importantly, was found to be negative after due diligence was completed, versus an earlier estimate of 1.3bil, according to the September document titled “Project Verde – Discussion Materials.”
A comment written on the margin of the financial findings in the document said: “no deal if equity value is negative.”
The due diligence findings and the stalling of the deal are likely to cast a pall over Foxconn’s ambition to expand in EVs, which the company believes is a major generator of growth in the future.
Foxconn, the world’s largest contract electronics maker, and ZF Group did not respond to requests for comment. JPMorgan declined to comment.
Foxconn and ZF Group had been in discussions about the Taiwanese company buying a stake in Division E by paying 1.3bil if its equity valuation hit 2.6bil, according to a ZF document dated February 19, 2025.
At the time, the two companies had also explored a joint venture structure, according to the ZF document.
Earlier this month, ZF Group said it would cut around a quarter of Division E’s workforce by 2030 under a restructuring deal reached with its works council and labour union IG Metall.
ZF Group has a high debt burden from past acquisitions and Foxconn’s due diligence showed that Division E’s net debt was nearly 90% higher than expected at 4.17bil, according to the JPMorgan document.
A significant part of the revised debt figure was attributable to 944.7mil of additional pension liabilities.
Foxconn’s pursuit of a stake in the unit came as the global EV industry has grown rapidly in recent years, driven by government incentives, tightening emissions regulations and rising consumer demand for cleaner transportation. — Reuters
