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Why Shares of Metaldyne Performance Group Are Soaring 41% Higher

By Daniel Miller – Updated Nov 3, 2016 at 12:30PM

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It's a big morning for Metaldyne investors as they digest third-quarter results and an acquisition agreement.

Image source: Getty Images.

What happened

What a morning for investors of Metaldyne Performance Group Inc. (NYSE: MPG), a provider of engineered components for use in powertrain and suspension applications for the global light, commercial and industrial vehicle markets. Its shares are soaring 41% higher as of 11:20 a.m. EDT after the company released third-quarter results and revealed it would be acquired by American Axle & Manufacturing Holdings, Inc.

So what

Starting first with brief third-quarter highlights, Metaldyne's top line declined from last year's $747 million, down to $676 million during the third quarter, which was below consensus estimates of $690 million. Despite the weaker top-line result, the company managed to generate adjusted earnings per share of $0.33, which was right in line with consensus estimates. One positive for investors is that the company is gaining some momentum with business wins. Metaldyne has booked $589 million of new business awards year to date, better than the original 2016 target of $400 million. 

"We continue to deliver strong operating results and margins despite certain macro headwinds and the planned attrition of our non-core wheel bearing business. We attribute these results to our relentless focus on cost reductions," said Metaldyne CEO George Thanopoulos.

Now what

But the real excitement driving the stock higher came from the announcement that it had agreed to be acquired by American Axle. More specifically, American Axle will acquire Metaldyne for approximately $1.6 billion in cash and stock, plus the assumption of $1.7 billion in net debt. For Metaldyne investors, this gives you $13.50 in cash per Metaldyne share and 0.5 share of American Axle common stock. 

American Axle paid a premium, but it could be worth the price long term as it brings together two complementary companies that will improve overall business scale and increase diversity of products, customers, and end markets. In fact, the companies estimate that the annual run rate of cost synergies will be between $100 million and $120 million by 2018. 

Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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