Cummins buys Meritor in $3.7 billion deal, accelerating auto supplier consolidation

Cummins Inc., a leading manufacturer of diesel engines for commercial trucks, announced on Tuesday that it will acquire Meritor Inc., which provides transmission, mobility, braking and electric powertrain components, for approximately $3 .7 billion.

Cummins, based in Columbus, Indiana, will pay $36.50 per share in cash and debt. This represents a 48% premium to Meritor’s closing price on February 18.

Meritor shares rose about $11.27, or about 46%, to $35.93 in morning trading after the announcement.

Cummins shares fell $1.75, or 0.8%, to $216.30.

The agreement will expand Cummins’ range of engine offerings and add axle and brake technology to its product line.

“Meritor is an industry leader, and adding their complementary strengths will help us address one of the most critical technology challenges of our time – developing economically viable zero-carbon solutions,” said the CEO. Cummins General Tom Linebarger in a statement. “Climate change is the existential crisis of our time and this acquisition accelerates our ability to address it.”

In other words, the majority of commercial trucks need to migrate from diesel to electric powertrains as soon as possible.

Cummins has already invested in electric powertrains and hydrogen technology. Hydrogen gas can be used to power fuel cells that produce electricity.

According to Barron’s, Meritor, prior to today, was trading at less than seven times its estimated 2022 earnings per share. Another vendor considered a peer of Meritor, BorgWarner, is trading at around 10 times its estimated 2022 earnings per share. .

Cummins officials said they expect the combined companies to generate about $130 million in savings by the third year after the transaction closes later this year.

Chris Villavarayan, President and CEO of Meritor, said the acquisition builds on Meritor’s track record of outstanding performance and customer service.

“Our offerings will continue to play an important strategic role as commercial vehicles transform to become electric and autonomous,” Villavarayan said.

Based in Troy, Michigan, Meritor’s roots in the automotive industry go back more than a century.

In 1997, Rockwell International spun off its automotive business as Meritor. Three years later, the company merged with Arvin Industries and changed its name to ArvinMeritor.

In 2011, it reverted to the Meritor name. Currently, the company has approximately 9,600 employees.

Cummins employs approximately 59,900 people.

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