Dowlais Group PLC on Wednesday accepted a £1.16 billion takeover by American Axle & Manufacturing, a producer of driveline products and systems.
‘The combination will bring together two companies with highly complementary customer bases, geographic footprints, powertrain-agnostic product portfolios, and manufacturing operations,’ Detroit, Michigan-based AAM commented.
Shareholders in London-based automotive engineering firm Dowlais stand to receive 0.0863 of a new AAM share, as well as 42 pence in cash and up to 2.8p in the form of a Dowlais final dividend.
The terms of the deal imply an 85.2p value per Dowlais share, based on AAM’s closing price of $5.82 on Tuesday. The offer price is a 25% premium to the Dowlais Tuesday closing price.
The deal gives the firm a £1.16 billion value on a fully diluted basis. AAM is worth $684.3 million. On completion, Dowlais will hold 49% of the enlarged group.
On Wednesday, shares in Dowlais were 9.0% higher at 74.48 pence each, giving the firm a market value of £1.00 billion.
Dowlais Chair Simon Mackenzie Smith said the deal creates ‘significant shareholder value’.
‘The Dowlais board is unanimous in its view that the proposed combination with AAM offers a compelling opportunity to unlock value for our shareholders. The strategic rationale for the combination is clear: together, we create a global leader with enhanced financial strength, broader diversification and a market-leading product portfolio that spans traditional and electrified powertrain solutions,’ he added.
AAM said it believes the combination will create significant annual run rate cost synergies of $300 million, expected to be substantially achieved by the end of the third year after completion.
The enlarged group would have revenue of around $12 billion and adjusted earnings before interest, tax, depreciation and amortisation margins of 14%.
AAM’s capital allocation policy will prioritise debt repayment whilst supporting organic growth until net leverage is below 2.5 times, at which point AAM intends to move to a more balanced capital allocation policy, it added.
In addition, the merged entity will benefit from a more diversified business model, AAM said.
‘This model will feature a robust cash-generative financial profile, a strong balance sheet, and a more competitive and margin enhancing position than the stand alone businesses, enabling continued innovation, growth, and long-term value creation for shareholders as the industry transitions to alternate propulsion technologies,’ AAM said.
AAM said it had received backing from Dowlais directors representing 0.3% of the firm’s share capital.
Dowlais was spun out of Melrose Industries in April 2023. Dowlais includes the GKN Automotive and the GKN Powder Metallurgy businesses.
Dowlais said it has cancelled a previously announced £50 million share buyback programme with immediate effect after agreeing the AAM deal.
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