Magna International Inc. has reached a $435-million (U.S.) deal with DaimlerChrysler AG to acquire the auto maker's New Venture Gear Inc. operations in a two-stage purchase that dramatically boosts Magna's four-wheel and all-wheel-drive capability.

New Venture, which had sales of $1.5-billion last year, develops four-wheel and all-wheel-drive systems and related components for Daimler, General Motors Corp., Volkswagen AG and other global auto makers.

The deal comes after months of negotiations. Magna will hold 80 per cent and Daimler 20 per cent of a new joint venture that will buy New Venture operations in Syracuse, N.Y., and Troy, Mich. In September, 2007, Magna will buy out Daimler's 20-per-cent stake. Magna will buy European operations in Roitzsch, Germany, outright.

Aurora, Ont.-based Magna already develops drivetrain components through its Magna Steyr operations, which design and develop such systems for the Mercedes-Benz division of Daimler in Europe and for GM in North America.

Magna has created a new division called Magna Drivetrain, and has targeted the development of these systems and components for them as a key growth area in the next few years. The market is worth $2-billion annually in North America, Magna executive vice-chairman Siegfried Wolf told the company's annual meeting earlier this month.

"This transaction is an important step in establishing our newly formed Magna Drivetrain group as a leading global supplier of technologically advanced four-wheel and all-wheel-drive systems," Magna chairman and founder Frank Stronach said in a statement. "With a strong manufacturing and development presence in both North America and Europe, we are well positioned to support the expected growth in our drivetrain business in the coming years."

The final agreement is subject to Magna reaching a contract with the United Auto Workers union, which has been a thorny issue in the talks.

That's because Magna had already won a contract with GM that meant the loss of New Venture's key piece of business, the transfer cases for GM's full-size pickup trucks and sport utility vehicles.

New Venture makes the current versions of the transfer case, but Magna won the business for the next generation of the vehicles later this decade.

Industry sources have said that taking that business away from New Venture angered Daimler -- which is Magna's largest customer overall -- and sparked demands by the German auto maker that the Canadian auto parts giant buy the entire business.

New Venture has about 3,700 employees.

The divestiture by Daimler will allow the auto maker to focus on creating and developing cars and trucks, Dieter Zetsche, president of Daimler's Chrysler group said in a statement.

"In addition, our relationship with Magna will provide us with access to the latest drivetrain technology," Mr. Zetsche said.