National Archives and Records Administration
Sherman Antitrust Act of 1890

UPDATED: Meritor and Eaton report settlement of long-running antitrust suit

June 23, 2014
Meritor says net proceeds will enable it “to strengthen its balance sheet”

An antitrust lawsuit involving three major global manufacturers of transmissions for commercial vehicles filed back in 2006 has been settled.

In separate news releases issued this morning both Meritor, Inc. and Eaton Corp. announced that ZF Meritor LLC, a joint venture between a Meritor, Inc. subsidiary and Germany-based ZF Friedrichshafen AG, and Meritor Transmission Corp. have reached an agreement with Eaton to settle the suit the other parties had brought against Eaton.

The lawsuit had alleged that Eaton engaged in unfair business practices in the truck-transmission market.

According to both Eaton and Meritor, Eaton has agreed to pay $500 million to ZF Meritor LLC. In return, ZF Meritor LLC and Meritor Transmission Corp. have agreed to dismiss all pending antitrust litigation with Eaton. 

The settlement agreement is subject to ZF Friedrichshafen AG corporate approval, which is expected to occur in early July.  Meritor said it will receive net proceeds of $209 million, which it expects to receive on or about July 15th.

Eaton said that the settlement agreement “completely resolves the antitrust lawsuit pending in the United States District Court, District of Delaware” and confirmed that the parties have agreed that Eaton will pay ZF Meritor LLC $500 million per the settlement.

ZF Meritor LLC filed the antitrust lawsuit in October  2006 against Eaton Corp. in the U.S. District Court for the District of Delaware to seek an injunction that would prohibit Eaton from engaging in what ZF Meritor termed “anticompetitive conduct” in the heavy-duty truck transmission market.

The lawsuit went down a long and winding road before settlement was reached. As pointed out in a post, it was three years later that a jury ruled on liability— but not on damages—  and found that Eaton had violated the Sherman Act and the Clayton Act, both of which are federal antitrust statutes.

“It is in the best interests of Eaton shareholders to settle this matter,” said Eaton chairman & CEO Alexander M. Cutler. “The settlement results in a permanent resolution of the matter and removes the uncertainty of a trial and a lengthy appeal process.”

In a presentation prepared for investors on the settlement, Meritor said that “after careful consideration, in-depth analyses, advice from expert advisors and robust negotiation,” it determined the settlement was “the best risk-adjusted outcome for the company and its shareholders” because it “provides certainty” by eliminating these risks:

  • Jury trial
  • Lengthy and costly appeals process
  • “Time value of money”

The component manufacturer also noted that the agreement is “one of the largest, private antitrust settlement awards collected by a plaintiff over the past ten years.”

Meritor said it will use its net proceeds of $209 million from the settlement to pre-fund the next three years of mandatory pension contributions in its U.S. and U.K. The company said this decision is “consistent” with its “efforts to de-risk its pension obligations and continue to strengthen its balance sheet.”

In addition, Meritor said this pre-funding of its global pension plans will “accelerate the company's path toward its M2016 objective of reducing net debt, including retirement liabilities, to less than $1.5 billion.”

"We have reached an agreement with Eaton that we believe is in the best interests of the company and our shareholders,” stated Meritor chairman & CEO Ike Evans. “We'll use these proceeds to accelerate our efforts to achieve our balance sheet goals under our M2016 [debt-reduction] plan. We are successfully putting this lawsuit behind us as we continue to execute on our plan to drive value for all shareholders."

Meritor also announced that its Board of Directors has authorized the repurchase of up to $210 million of the company's equity or equity-linked securities funded with a portion of future free cash flow. The manufacturer said it “expects repurchases under this program to be made through open market or privately negotiated transactions, which would commence upon achievement of its M2016 debt-reduction target.”

What’s more, Meritor said that with the proceeds from the settlement being devoted to pre-funding pension contributions, it expects to hit its M2016 debt-reduction target in the second half of calendar year 2015. 


“This outcome delivers immediate and certain value to our company and empowers us to accomplish a number of goals with substantial strategic value to Meritor," Krista Sohn, Meritor's vice president, communciations, told FleetOwner.

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