Volkswagen Truck & Bus is taking a 16.6% equity stake in Navistar International Corp. as part of a “wide-ranging strategic alliance” that will initially focus on providing powertrains for Navistar trucks starting in 2019.

The joint venture is based on four pillars:

1. The equity investment: Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6% of post-transaction undiluted common stock (or 19.9% of pre-transaction outstanding common stock). It will pay $15.76 per share or a 25% premium over Navistar’s 90-day volume weighted average price as of Aug. 31, or 12% over Navistar’s closing price on Sept. 2. Navistar will receive $256 million from the equity investment to be used for general corporate purposes.

2. Technology sharing: The two companies will collaborate on technology for powertrain systems, as well as other advanced technologies. It will focus on powertrain technology solutions, with VW supplying engines and other powertrain components by 2019, according to Andreas Renschler, CEO of Volkswagen Truck & Bus. It also will explore collaboration in other areas, including advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components. This collaboration will allow the companies to share some of the costs of future vehicle development.

3. A procurement joint venture: Pursuing joint global sourcing opportunities for parts for both companies will give both greater scale and competitiveness. It also can create improved pricing for end customers.

4. Governance: Navistar will add two Volkswagen Truck & Bus representatives to its board of directors, and a separate board will be formed to oversee the alliance.

When asked how the deal will affect Navistar’s deal with Cummins, which is supplying some three-quarters of the engines going into International trucks, Troy Clarke, Navistar president and CEO, said, “We anticipate we will continue to offer Cummins products for a period of time. We’ve got a great partnership with them as well. We’re not speculating or making announcements on that today.”

For Volkswagen, the move is “a major milestone on our way to crating a global champion,” said Renschler, noting that the alliance “allows us access to the North American market and create synergies on the technology and on the human side.”

He pointed out that the alliance offers complementary geographic footprint, with VW being strong in Europe and South America, and Navistar strong in North America and Latin America, especially Brazil.

There has long been speculation that VW would move to acquire Navistar. When asked about potential plans for a further investment in Navistar, Renschler said, “We believe with the alliance we are forming at the moment … is the right thing … It’s a starting point. Our companies can get to know each other … and I think for us it’s a perfect entry and in a couple of years we can see…. All our options are open.”

The timing was right, he added, because VW is currently starting work on its new global powertrain platform and can get Navistar involved in early stages.

Navistar expects cumulative synergies for Navistar to ramp up to at least $500 million over the first five years. By year five, it expects the alliance will generate annual synergies of at least $200 million. That amount is expected to grow as the companies continue to introduce technologies from the collaboration.

In addition, explained Clarke, the deal can help “relieve anxiety on the part of some of our customers [who may have been concerned whether] Navistar [would] have the ability to have access to new technology going forward. If you’re a company that buys trucks you don’t want to find that technology is stranded at some point in the future. This, I think, will get at that in a big way, and I fully expect will increase consideration of our products. We are improving our market share, it’s just not as fast as we had hoped, and this should increase that. This gives us the opportunity to get on the balls of our feet again.”

Meanwhile, Navistar is preparing to unveil the first of the new trucks in its Project Horizon line later this month.