To further accelerate the development of electrified power solutions for commercial vehicles, Cummins is acquiring Meritor Inc., a global provider of drivetrain, mobility, braking, aftermarket, and electric powertrain solutions.
According to the agreement, Cummins will pay $36.50 in cash per Meritor share, for a total value of about $3.7 billion.
The acquisition is expected to position Cummins as one of the few companies able to provide integrated powertrain solutions across combustion and electric power applications. On Feb. 22, Cummins leadership stated that this “the right time to pursue this combination” as demand for decarbonized solutions accelerates.Meritor began production of its 14Xe all-electric, fully integrated, commercial electric powertrain for medium- and heavy-duty commercial vehicles.
Meritor, which has a legacy that dates back more than 110 years, is headquartered in Troy, Michigan, and has more than 9,600 employees serving commercial truck, trailer, off-highway, defense, specialty, and aftermarket customers around the world.
Tom Linebarger, Cummins chairman and CEO, called the acquisition of Meritor "an important milestone" for Cummins. On a conference call with analysts, he noted that the highly complementary nature of the companies' product lines was key to pursuing the deal.
“We think we can be at the table now for pretty much every negotiation about who’s going to supply what in the commercial-industrial sector. And that’s a big deal,” Linebarger said. "We want to make sure that we are able to provide both systems and components that are compelling to customers."
According to Linebarger, the acquisition also will provide a “compelling financial case,” with annual run rate synergies of $130 million achievable by year three from selling, general and administrative expenses (SG&A), supply chain, and footprint optimization. By then, the companies said, Meritor's profit margins will have risen to be close to those of Cummins.
“Our offerings will continue to play an important, strategic role as commercial vehicles transform to become electric and autonomous,” Chris Villavarayan, Meritor president and CEO, said in a statement. “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.”
Meritor's board of directors has unanimously approved the agreement with Cummins. The transaction is expected to close by the end of the calendar year and Linebarger said Cummins will ramp up spending on e-axles and traction systems once the companies have joined forces.
Less than two weeks prior, Cummins also announced its intent to acquire Jacobs Vehicle Systems from Altra Industrial Motion Corp. for $325 million. This puts Cummins in a position to leverage JVS' cylinder deactivation technology that reduces fuel consumption and emissions. That deal is also expected to finalize by the end of the year.