Truck Engine Maker to Buy Components Co. for $3.7B

Source: Streetwise Reports   02/22/2022

Shares of Meritor Inc. traded 45% higher after the company reported it entered into an agreement to be acquired by Cummins Inc. for $36.50 per share in cash.

Original equipment manufacturer (OEM) Meritor Inc. (MTOR:NYSE), which supplies integrated systems, modules and components to the commercial vehicle, transportation and industrial sectors, today announced that it entered into a definitive agreement to be acquired by Cummins Inc. (CMI:NYSE) for $36.50 per share in an all-cash transaction valued at approximately $3.7 billion.

Cummins has a market cap of over $31 billion and is a leading global manufacturer of engine components, drivetrain, mobility, braking, aftermarket and electric powertrain solutions for heavy-duty commercial and industrial vehicles. The report indicated that the acquisition of Meritor will strengthen Cummins’ “industry-leading range of powertrain components and accelerate development of electrified power solutions.”

Cummins Chairman and CEO Tom Linebarger commented, “Meritor is an industry leader, and the addition of their complementary strengths will help us address one of the most critical technology challenges of our age: developing economically viable zero carbon solutions for commercial and industrial applications…Climate change is the existential crisis of our time, and this acquisition accelerates our ability to address it. Our customers need economically viable decarbonized solutions.”

“This acquisition adds products to our components business that are independent of powertrain technology, and by leveraging our global footprint we expect to accelerate the growth in Meritor’s core axle and brake businesses. There is also a compelling financial case for this acquisition, with significant synergies expected in SG&A, supply chain operations and facilities optimization,” Linebarger added.

Meritor’s CEO and President Chris Villavarayan remarked, “This agreement with Cummins builds on Meritor’s track-record of outstanding performance and service to our customers. Our offerings will continue to play an important, strategic role as commercial vehicles transform to become electric and autonomous…At closing, Meritor shareholders will receive immediate value at a compelling 48% premium to the Meritor trading price as of Feb. 18, 2022, and customers will benefit from enhanced capabilities in technology and the ability to accelerate investment in axle and brake development and EV adoption.”

Meritor is an industry leader in axle and brake technology that has been business for around 110 years. The report indicated that the purchase of Meritor will help position Cummins as “one of the few companies able to provide integrated powertrain solutions across combustion and electric power applications.”

Cummins believes that this is the opportune time to merge the two businesses as demand continues to rise for decarbonized power solutions. Cummins noted that eAxles are expected to be a key integration point within electric and hybrid drivetrains and with the addition of Meritor’s assets its New Power business will be able to deliver market-leading, integrated electrification solutions to customers.

Cummins stated that intends to finance the transaction through a combination of cash on hand and debt but did not provide specific details. Each company’s respective Board of Directors has already unanimously approved the purchase which is expected to close by year-end 2022. The transaction remains subject to approval by Meritor’s shareholders, ordinary closing conditions and regulatory approvals.

Cummins is headquartered in Columbus, Ind. and employs approximately 59,900 people. The company designs, manufactures, distributes and services a broad range of power solutions. The firm listed that “its products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products.” The company generated sales of $24.0 billion in 2021.

Meritor is based in Troy, Mich. and is a global OEM and aftermarket supplier of braking, drivetrain, mobility and electric powertrain solutions used in commercial vehicles and industrial sectors. The company employs 9,600 people serving commercial truck, defense, off-highway, specialty, trailer and aftermarket customers worldwide.

Meritor started off the day with a market cap of around $1.7 billion with approximately 70.8 million shares outstanding and a short interest of about 2.7%. MTOR shares opened 44% higher today at $35.55 (+$10.88, +44.10%) over Friday’s $24.67 closing price and reached a new 52-week high price this morning of $36.24. The stock has traded today between $35.55 and $36.24 per share and is currently trading at $35.81 (+$11.14, +45.16%).

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