- Shares jump 10% on deal news
- Buyer paying just a 25% premium
- Shares had halved since listing
Spin-offs are usually fertile ground for investors, but that hasn’t been the case for shareholders who bought into automotive components and powder metallurgy group Dowlais (DWL) after its demerger from Melrose (MRO).
Fortunately, holders have been offered respite of sorts in the shape of an agreed deal with US driveline manufacturer American Axle (AXL:NYSE) which values the business at £1 billion.
Dowlais shares added 7.5p or 11% to 76p, still some way short of the valuation implied by the deal.
SMALL PREMIUM
After spinning out Melrose in early 2023, Dowlais shares briefly touched a high of 140p before beginning an inexorable 18-month slide to a low of 48p in November of last year.
The stock price bounced following a third-quarter trading update where the firm revealed revenue was falling less steeply than at the half-year and confirmed its margin target for the full year, but it subsequently stalled around the 65p level due to lack of new news or broker upgrades.
Today’s deal, which is made up of 42p in cash, a further 2.8p final cash dividend (subject to approval from the Dowlais board) and 0.0863 new American Axle shares per Dowlais share, values the firm at 85.2p based on last night’s closing price of $5.82 for the US firm or a 25% premium to Tuesday’s close.
Once the deal has completed, Dowlais shareholders will own 49% of the combined group and 51% will be in hands of American Axle shareholders.
EXPLAINING THE DEAL
Most of the Dowlais board will be invited to join the senior executive management team, no doubt to help identify where the planned annual run-rate cost synergies of $300 million are expected to come from three years down the line.
The combined group is estimated to have $12 billion of annual revenue and a 14% adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) margin before cost synergies, giving it a strong position within the auto supplier landscape.