BorgWarner and Delphi Technologies have announced that they have entered into a definitive transaction agreement under which BorgWarner will acquire Delphi Technologies in an all-stock transaction that values Delphi Technologies’ enterprise value at approximately USD3.3bn.
BorgWarner said the acquisition would strengthen BorgWarner’s power electronics products, capabilities and scale. It also said combining with Delphi Technologies is consistent with BorgWarner’s evolution towards the propulsion market of the future and would enable BorgWarner to maintain flexibility across combustion, hybrid, and electric propulsion.
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In fiscal year 2019, BorgWarner and Delphi Technologies estimate that they generated USD10.17bn and USD4.36bn of net sales, respectively. BorgWarner said the combined company is expected to be one of the leading pure-play propulsion companies globally, serving light and commercial vehicle manufacturers and the aftermarket. The combined company would offer a unique, more comprehensive portfolio of industry-leading propulsion products and systems across combustion, hybrid and electric, resulting in greater content per vehicle relative to BorgWarner today.
“This exciting transaction represents the next step in BorgWarner’s balanced propulsion strategy, strengthening our position in electrified propulsion as well as our combustion, commercial vehicle and aftermarket businesses,” said Frédéric Lissalde, President and CEO of BorgWarner. “Delphi Technologies will bring proven leading power electronics technologies, talent and scale that will complement our hybrid and electric vehicle propulsion offerings. As a combined company, we look forward to delivering enhanced solutions to our customers while driving increased value for our stockholders.”
Lissalde added: “We have a great deal of respect for Delphi Technologies’ team around the world and look forward to welcoming them to BorgWarner. We are confident that together we will be able to move faster to address market trends toward electrification.”
“This is a compelling transaction that we are confident delivers clear benefits to our stakeholders,” said Richard F. Dauch, CEO of Delphi Technologies. “Delphi Technologies’ portfolio is highly complementary to BorgWarner’s, and together we plan to create a pioneering propulsion technologies company uniquely equipped to serve OEMs and aftermarket customers around the world. BorgWarner’s team shares our focus on addressing today’s and tomorrow’s challenges, and the combination will create exciting opportunities for our employees. We also expect our stockholders will benefit from the opportunity to participate in the future growth and upside potential of the combined company.”
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By GlobalDataBorgWarner outlined a number of planned future benefits from the new combination, including:
- Strengthen BorgWarner’s power electronics products, capabilities and scale, creating a leader in electrified propulsion systems that is well-positioned to take advantage of future propulsion migration. Delphi Technologies brings industry leading power electronics technology and talent, with an established production, supply and customer base. The combined company would offer customers a suite of integrated and standalone offerings of power electronics products (including high voltage inverters, converters, on-board chargers and battery management systems) and capabilities (including software, systems integration and thermal management).
- Enhance BorgWarner’s combustion, commercial vehicle and aftermarket businesses. Delphi Technologies’ breadth of combustion propulsion products complements BorgWarner’s portfolio, which is focused on clean technologies to increase efficiency and performance of modern combustion vehicles. Adding Delphi Technologies’ commercial vehicle and aftermarket business results in more balance across light vehicles, commercial vehicles and the aftermarket.
- Drive meaningful synergies. BorgWarner expects the combined company to realize run-rate cost synergies of approximately USD125m by 2023 driven primarily by SG&A and procurement savings. These savings are incremental to Delphi Technologies’ and BorgWarner’s existing cost reduction plans. In addition, BorgWarner expects significant long-term revenue synergies primarily from the opportunity to offer more integrated electrified products, creating further value for the combined company’s stockholders.
- Deliver earnings accretion and preserve BorgWarner’s balance sheet.
The BorgWarner/Delphi Technologies transaction is expected to close in the second half of 2020, subject to approval by Delphi Technologies’ stockholders, the satisfaction of customary closing conditions and receipt of regulatory approvals.
Management
Following the closing of the transaction, the combined company will be led by Frédéric Lissalde, BorgWarner’s President and CEO, and Kevin Nowlan, BorgWarner’s CFO, and will operate as BorgWarner. The combined company will be headquartered in Auburn Hills, Michigan.
Analyst view
“Two companies are wrestling with the new challenges presented by the CASE megatrends and coming up with the age-old response of scale economies.”
Calum MacRae, GlobalData automotive analyst, sees pressures in the automotive industry, particularly to invest in costly advanced technologies, as a driver behind increasing supplier sector consolidation. “The deal’s similar in rationale to the PSA and FCA merger. Two companies are wrestling with the new challenges presented by the CASE megatrends and coming up with the age-old response of scale economies,” he says.
“Of the two companies, BorgWarner’s a bit better positioned than Delphi Technologies due to stronger presence in batteries and electric vehicles according to our [GlobalData’s] thematic research, but it’s passed its heyday when it rode the downsizing trend due to its strength in turbochargers.
“Now it, along with Delphi Technologies – itself the legacy business when the sexier portfolio was carved out to form Aptiv – is just one of many old-school mechanical engineering companies looking to address the disruption coming down the road by making its core operations more efficient. Our sense is that this is just a short-term fix for long-term issues that these businesses face; no doubt there will be other mergers of a similar ilk that will ratchet down costs but not lead to sustainable long-term competitive advantage.”
