Motor Coach Industries International Inc. announced the signing of a Letter of Intent with Daimler AG to acquire the Setra business in the U.S. and Canada and establish a strategic partnership with Daimler. The companies have agreed upon the material terms and conditions of the transaction and are working to finalize definitive agreements, which they expect to enter and consummate no later than May 31, 2012.

Upon consummation of the transaction, Daimler Buses would receive a minority ownership stake in MCI, and MCI would become the exclusive North American (U.S. and Canada) distributor of the Setra S407 and S417 motorcoaches.

“Daimler is going to acquire a minority equity position in MCI, and what that means for us as a company is we get access to some of the benefits of a partnership with the world’s largest bus manufacturer,” MCI CEO Rick Heller told METRO. “We will get access to their engineering and manufacturing expertise. We will have access to their supply chain. We will have access to their advanced technologies. And, all those things will enable MCI to be able to progress further and faster than we could as a stand-alone company, so those are all big benefits for us.”

Under the proposed agreement, through a transition period of several months following the execution of definitive agreements and the closing of the transaction, MCI would evaluate operations related to Setra in North America, and where appropriate, integrate such operations with existing MCI facilities, which will permit the two manufacturers to realize significant operating synergies. This planned partnership will allow Daimler Buses to better serve its customers through a broader service network, while strengthening Setra’s presence in North America.

“What we have right now is a letter of intent. We will be working over the next couple of months to finalize and close the transaction, and during that timeframe, we will make specific decisions in terms of what needs to happen,” said Heller. “The plan basically is to leverage our infrastructure for the Setra business. We have the biggest and most extensive infrastructure in the industry, and Setra being able benefit from our existing infrastructure really makes them a much stronger brand in the industry.”

All Setra motorcoaches will continue to be produced in Neu-Ulm, Germany. Daimler anticipates that operations related to Mercedes-Benz Sprinter in Greensboro, N.C., will be transferred to another Daimler facility.

“We’re excited at the prospect of this partnership with MCI, which is a leading manufacturer of coaches in North America with top-flight distribution and service networks in the U.S. and Canada,” said Hartmut Schick, head of Daimler Buses. “Under a Setra-MCI partnership, customers will continue to enjoy the same state-of-art technology, quality German engineering and best total cost of ownership in the market. A strategic relationship with MCI will carry forward Setra’s proud tradition in North America, and also take it to the next level – through increased local presence and enhanced customer services for Setra.”

The move to partner for distribution with MCI was announced as part of Daimler Buses’ reconfiguring of its bus business in North America and the “Globe 2013” initiative.

As part of the initiative, Daimler also announced that it will exit the transit bus business and wind down Orion transit bus production after fulfillment of current orders. Following the fulfillment of current production commitments over the next 12 months, the operating facility in Mississauga, Ontario will be closed and the facility in Oriskany, N.Y., will continue operations related to parts and field service only. In addition, Daimler expects to continue a retrofit program for current customers at the Oriskany facility.

Daimler clearly stands behind all current customer commitments and warranties, and will therefore continue to support all Orion customers’ warranty and service agreements through its extensive network of parts and field service representatives in the U.S. and Canada.

“Daimler Buses considered all possible options for reconfiguring our transit bus operations in North America, but at the end of the day, Orion is facing a situation where the cost position is not competitive, the local market is in a continued slump, and growth opportunities are not available from selling the product overseas,” said Schick. “Discontinuing production of Orion buses was a very difficult decision for us to make, but to secure our leadership position we must always strive to invest resources efficiently in support of our global strategy for growth. As part of our lasting commitment to all existing Orion customers, we will make sure a robust parts and service infrastructure continues to provide a high level of service and support.”

Daimler intends to provide a separation benefit to all eligible employees affected by the reconfiguration of its Setra and Orion bus and coach businesses in North America, including to those separating employees for whom such benefits are not otherwise required by law.

Daimler Buses last month announced GLOBE 2013, an initiative for Global Bus Excellence that aims to shape the future of mobility, while securing sustainable competitiveness through worldwide advances in growth and efficiency. In 2011, Daimler Buses sold 39,740 buses and coaches worldwide. Whereas the bus business was booming in some parts of the world, particularly in Latin America, the industry in Western Europe remained in a slump because of the financial and debt crisis.

Market demand was similarly negative in North America, which, like its Western European counterparts, suffered from public sector budget constraints and therefore from substantially fewer calls for bids.