Takata files for bankruptcy, agrees to be acquired by Key Safety

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Takata CEO Shigehisa Takada, pictured at Monday’s press conference: “KSS is the ideal sponsor as we address the costs related to airbag inflator recalls, and an optimal partner to the company’s customers, suppliers and employees.” Photo credit: Reuters

UPDATED: 6/25/17 9:30 pm ET — adds details

TOKYO — Troubled Japanese airbag maker Takata Corp. filed for bankruptcy protection in Japan and the U.S., succumbing to the weight of the world’s biggest automotive recall scandal and saying it would sell key assets to U.S. supplier Key Safety Systems.

Key Safety, based in based in Sterling Heights, Mich., said separately it would buy “substantially all” of Takata’s global assets and operations for $ 1.59 billion.

The sale will not include some operations related to Takata’s business in the ammonium nitrate airbag inflators that were the subject of a global recall linked to defects that resulted in some airbags exploding with too much force and spraying the cabin with metal shards.

Malfunctioning Takata airbag inflators have been linked to at least 16 deaths and 180 injuries worldwide and a $ 1 billion fine in the U.S. In January, a federal grand jury indicted three former Takata executives for criminal wrongdoing in connection with the safety defect.

Key Safety said the amonium nitrate airbag inflator operations would be run by a reorganized Takata following the closing of the transaction — and they would eventually wind down.

Automakers are creditors

Seventeen automakers — including Honda Motor Co., Toyota Motor Corp. and BMW AG — were listed as unsecured creditors with unknown claims related to recalls and indemnification, according to the filing. Litigation claims, which have not been estimated, included those from class-action plaintiffs in the U.S. and Canada and the attorney general of the U.S. Virgin Islands. The National Highway Traffic Safety Administration has an $ 180 million claim for fines and penalties.

Recalls of Takata’s airbag inflators began around 2008 and involve around 100 million inflators around the world used in vehicles made by 19 automakers, including the creditors listed in the case. 

Recalls are to continue through at least the end of 2019.

Key Safety’s purchase aims to leverage other Takata assets, such as safety belts.

“The underlying strength of its skilled employee base, geographic reach, and exceptional steering wheels, seat belts and other safety products have not diminished,” Key Safety CEO Jason Luo said in a statement. “We look forward to finalizing definitive agreements with Takata in the coming weeks, completing the transaction and serving both our new and long-standing customers while investing in the next phase of growth for the new [Key Safety].”

The deal is expected to close in the first quarter of 2018, Key Safety said. Key Safety, which makes active and passive safety systems for vehicles, is an independently operated subsidiary of Chinese supplier Ningbo Joyson Electronic Corp. The Takata purchase is seen as giving Key Safety and its Chinese parent company a jump-start into new segments with a deep customer base.

Takata’s U.S. subsidiary, TK Holdings Inc., late Sunday filed Chapter 11 bankruptcy in the U.S. and Takata filed bankruptcy in Japan (Monday morning Japan time). Bankruptcy will allow Key Safety to indemnify itself from legal liability related to Takata’s airbags.

Minimizing disruption

The structure of the bankruptcy is designed to minimize supply chain disruptions, both Key Safety and Takata said. Key Safety also plans to retain all Takata employees and maintain operations in Japan, including the opening of a new regional headquarters in Tokyo.

KSS said it will continue to support Takata’s customers, suppliers and employees and “embrace and honor Takata’s Japanese heritage.”

“KSS is the ideal sponsor as we address the costs related to airbag inflator recalls, and an optimal partner to the company’s customers, suppliers and employees,” Takata CEO Shigehisa Takada said. “Throughout this process, our top priorities have been providing a steady supply of products to our valued customers, including replacement parts for recalls, and a stable home for our exceptional employees. This agreement would allow that to continue.”

Automakers have already shifted business away from Takata and toward rivals for about 70 percent of the parts to repair defective airbag inflators.

Only 38 percent of the 43 million airbag inflators under recall in the U.S. had been repaired as of May 26, according to data on the U.S. Department of Transportation’s National Highway Traffic Safety Administration’s website.

Globally, Takata faces up to $ 10 billion in potential liabilities for the ongoing recalls, penalties and settlements, according to some analysts. Takata was negotiating with other potential buyers — including market leader Autoliv Inc. of Sweden — months before reaching a deal with Key Safety.

Dustin Walsh of Crain’s Detroit Business contributed to this report along with Bloomberg and Reuters.

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