VW to supply engines in exchange for Navistar stake - sources

By Alexander Hübner, Jan Schwartz and Andreas Cremer

FRANKFURT (Reuters) - Volkswagen's (VOWG_p.DE) trucks division is close to announcing a partnership with U.S.-based rival Navistar International Corp (NAV.N), three sources told Reuters, in the latest example of a deal driven by emissions regulations.

Volkswagen has agreed to supply engines to Navistar in exchange for a 19.9 percent stake in the truckmaker, one of the sources, who declined to be named, told Reuters.

Volkswagen will pay around $16 per Navistar share or about 200 million euros (167.50 million pound) in total, the source said.

The deal will be announced as soon as Tuesday, the sources said. Volkswagen and Navistar declined to comment.

The financial burden of developing next generation engines to meet new emissions standards is forcing several vehicle makers to pursue partnerships and technology deals.

In May, Nissan took a 34 percent stake in Mitsubishi Motors (7211.T), while in 2013, Aston Martin agreed to sell a 5 percent stake to Mercedes-Benz parent Daimler (DAIGn.DE) in exchange for delivering next generation engines and electronics that meet the latest emissions rules.

Volkswagen's commercial vehicles division is trying to build itself into a global truck manufacturer having absorbed Germany's MAN (MANG.DE) and Sweden's Scania [SCVSA.UL], while Navistar is looking for a technology partner to build engines that can meet ever more stringent emissions rules.

For Volkswagen, Navistar is seen as an attractive target because it has a large North American dealer network, something the German company lacks.

Navistar, which has a market value of around $1.15 billion, has been on the lookout for an engine partner since 2010 when it failed to get approval from the U.S. Environmental Protection Agency for its heavy-duty diesel truck engine.

The two companies have been in talks about a potential tie-up for years, but Volkswagen has been distracted for much of the past 12 months by a diesel emissions test cheating scandal that has seen several top management departures.

(Additional reporting by Edward Taylor, Irene Preisinger and Arno Schuetze; Editing by Alexander Smith and Mark Potter)