Electing to put all its focus on its commercial vehicle business, ArvinMeritor Inc. announced today it will spin off its Light Vehicle Systems (LVS) business to ArvinMeritor shareholders. The company’s Commercial Vehicle Systems (CVS) business unit will remain with ArvinMeritor, which will continue to be led by Chip McClure, who will remain chairman, CEO & president, and by Carsten Reinhardt, currently senior vp of ArvinMeritor & CVS president, who will become COO for ArvinMeritor once the spin-off is done.
“The plan to separate our two businesses is the result of a comprehensive strategic review to enhance the company’s long-term value for our shareholders,” said McClure in a morning teleconference with reporters and analysts. “We are confident that this transaction will not only unlock shareholder value, but will also significantly strengthen the competitive positions of both companies and better align them with their respective customer bases.”
On completion of the spin-off, ArvinMeritor shareholders will own 100 % of the common stock of the new firm, to be named Arvin Innovation Inc. Approval of the spin-off by shareholders is not required and the company expects to complete the action within the next 12 months, contingent upon satisfactory financial and automotive market conditions as well as other customary approvals.
James Marley, currently a board member of ArvinMeritor, will head Arvin Innovation’s board as non-executive chairman. Until the spin-off is completed, Marley, a retired chairman of the board of AMP Inc., will remain on the ArvinMeritor board. Phil Martens, currently ArvinMeritor senior vp & LVS president will become president & CEO of Arvin Innovation.
Clearly, with top management staying with ArvinMeritor, the company holds a solidly positive view of its position in the global commercial-vehicle arena. “Each company will benefit from a greater strategic focus on its core business and growth opportunities as well as from increased recognition in each of its global market segments,” said McClure. “In addition, the separate companies will offer more attractive and targeted investment opportunities, with incentives for management and employees that are more closely aligned with company performance and shareholder interests.”
According to Bear Stearns analyst Peter Nesvold, ArvinMeritor has been repositioning itself “as a truck equipment supplier, rather than an auto parts supplier, over the past several years. The formal separation of CVS and LVS makes sense, though the precise structure (i.e., a public spin) supports our prior view that there was neither a strategic nor financial acquirer interested in all of LVS at a reasonable price. There’s little overlap in the end-markets, distribution, and R&D…. there are few synergies lost by separating the two teams.”
Asked by FleetOwner whether there would be much overlap between the two firms, Reinhardt said, “Our strategy begins in medium-duty and extends into heavy and onto off-highway and specialty [commercial] vehicles… if there are joint opportunities [with Arvin Innovation] we will explore them.”
Analyst Chris Brady, president of Commercial Vehicle Consulting, told FleetOwner “which business management sticks with [in a spin-off] tells you which one is stronger. At same time, separating the two allows each to compete for resources more effectively as they can be valued separately by investors.”
Upon completion of the spin-off, ArvinMeritor stated it “will continue as a market leader in the commercial vehicle systems business.” Its CVS unit now has approximately 10,000 employees in 15 countries. In 2007, CVS recorded sales of more than $4.2 billion.
ArvinMeritor will keep its headquarters in Troy, MI, while Arvin Innovation will be headquartered in Detroit, at the current location of the LVS Detroit Technology Center, with other corporate offices located in Europe, Asia and South America.