US-based global automotive component supplier BorgWarner Inc is set to take over UK rival Delphi Technologies in a $3.3 billion all-stock deal. BorgWarner announced the deal on Tuesday, revealing that it expects the deal to be closed by the second half of this year.
Following the announcement of the acquisition, shares of Delphi Technologies in London skyrocketed by more than 62 percent in Tuesday morning's trading session. Meanwhile, BorgWarner's shares had slid by around 7 percent in the United States.
According to BorgWarner, the two automotive component suppliers have reached a definitive transaction agreement, which had been abroad by both companies' board of directors. Under the deal, existing Delphi technologies stockholders will receive BorgWarner common stocks at a fixed exchange ratio of 0.4534.
Existing BorgWarner shareholders, on the other hand, will effectively own 84 percent of the merged company, while the rest of the stake will go to Delphi Technologies stockholders. BorgWarner added that its board of directors has already authorized a new share repurchase program of up to $1 billion over the next three years.
BorgWarner's current president and CEO, Frederic Lissalde will head the merged company, which has an estimated market valuation of more than $14.5 billion. BorgWarner's current CFO, Kevin Nowlan, will retain his position at the new company. Under the deal, the merged entity will be headquartered in the United States, specifically in Auburn Hills, Michigan.
BorgWarner mentioned in a press release that the combination of Delphi Technologies' leading power electronics technologies and the company's hybrid electric vehicle propulsion should significantly boost the merged company's ability to increase its market share.
Lissalde added in the release that the combined company is expected to increase value for stockholders, while at the same time promote enhanced solutions and developments for old and new customers. The executive pointed out that the scale and talent provided by Delphi Technologies, along with its existing products, were the main driving factors that led to the merger decision.
BorgWarner is primarily known for its power train products, which includes transmissions, clutches, turbochargers, four-wheel drive systems, and engine valve timing systems. Meanwhile, Delphi Technologies is best known for its combustion systems, electrification products, and vehicle software.
The synergies that will come out of the merger are expected to generate up to $125 million in run-rate cost savings by 2023. The run-rate cost efficiencies generated by the deal are also expected to greatly enhance profitability in the coming years.
