Cummins Inc. and Meritor Inc. announced that they have entered into a definitive agreement under which Cummins will acquire Meritor. Under the terms of the agreement, Cummins will pay $36.50 in cash per Meritor share, for a total transaction value of approximately $3.7 billion, including assumed debt and net of acquired cash.
“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,” said Chris Villavarayan, CEO and President of Meritor. “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. Our global team members and their commitment to excellence helped make this transaction possible and will fuel our innovations as we embark on this next chapter in our longstanding legacy.”
The acquisition of Meritor is expected to be immediately accretive to Cummins’ adjusted EPS and is expected to generate annual pre-tax run-rate synergies of approximately $130 million by year three after closing. Cummins intends to finance the transaction using a combination of cash on the company’s balance sheet and debt and remains committed to maintaining its strong credit ratings.
The Board of Directors of Meritor has unanimously approved the agreement with Cummins and recommends that Meritor shareholders vote in favor of the transaction at the Special Meeting of Shareholders to be called in connection with the transaction. The transaction, which is subject to customary closing conditions and receipt of applicable regulatory approvals and Meritor shareholder approval, is expected to close by the end of the calendar year.
Cummins will hold a call with analysts and investors at 9:30 AM EST today to discuss the benefits of this transaction. Participating in that call will be Tom Linebarger, Chairman and CEO of Cummins, and Mark Smith, Cummins’ Chief Financial Officer and Chris Villavarayan, CEO and President of Meritor.
Morgan Stanley & Co. LLC is serving as financial advisor to Cummins and Mayer Brown is serving as legal advisor. J.P. Morgan Securities LLC is serving as financial advisor to Meritor and Wachtell, Lipton, Rosen & Katz is serving as legal advisor.
Jason Morgan, Content Director: I think this gif sums up our collective reaction in the FE office:
This announcement comes a week after Cummins’s announcement of fuel-agnostic engine platforms. During that press conference, Cummins called climate change the “existential crisis of our time.” The fuel-agnostic internal combustion engine platform was framed as a stepping stone to increased decarbonization across the trucking industry. Cummins has long been interested in electric powertrains (unveiling the first commercial EV, a Class 7 concept tractor back in 2017), and Meritor’s 14Xe powertrain has transformed the company into a complete powertrain provider. The marriage of the two companies is as obvious as it is amazing. These are two huge names in the trucking industry. For those questioning the investments behind electric vehicle development, this is a pretty loud answer that speaks to its continued development.
Catch up on Cummins’s engine announcement from last week:
And here’s the full transcript of today’s analyst call: