U.S. auto-parts giant BorgWarner (NYSE:BWA) has agreed to buy its U.K.-based rival, Delphi Technologies (NYSE:DLPH), in an all-stock deal that puts Delphi's enterprise value at $3.3 billion. The move comes as BorgWarner seeks to expand its offerings for makers of hybrid and electric vehicles.
For auto investors looking to profit from the trend toward electrified vehicles, this is a noteworthy deal. Here's what we know.
About the deal
It's a simple all-stock deal. Delphi Technologies' shareholders will receive 0.4534 shares of BorgWarner stock for each Delphi share they own. Once that's completed, current Delphi shareholders will own about 16% of the combined company.
Using Monday's closing prices, that implies that BorgWarner is paying about $17.39 per share for Delphi, valuing Delphi's equity at about $1.5 billion. That's a big premium: Delphi's shares closed at $9.80 on Monday.
BorgWarner will also assume Delphi's debt. Delphi had long-term debt of $1.47 billion as of Sept. 30. Add in short-term obligations, and that gives it a total enterprise value of $3.3 billion.
It certainly looks like a good deal for Delphi Technologies shareholders. But is it a good deal for BorgWarner?
Is this a smart move by BorgWarner?
In a presentation to shareholders on Tuesday morning, BorgWarner executives argued that the companies' product offerings and strengths are complementary.
There's merit to that argument. BorgWarner focuses on "powertrains": parts and technologies related to the systems that make vehicles move. BorgWarner's portfolio includes products like transmissions, turbochargers, and emissions-control devices, including components for hybrid and fully electric vehicles.
Delphi Technologies is one of two companies that resulted from the split of former auto-parts giant Delphi Automotive. (The other is Aptiv, which is focused on driver-assist and self-driving systems.) In a nutshell, Delphi Technologies offers electronic components that manage various systems in a vehicle, including the powertrain. Like BorgWarner, Delphi has worked to create new systems and technologies for hybrid and electric vehicles, building on its "legacy" internal-combustion-related offerings.
The companies' portfolios have some overlap, but they're broadly complementary. The idea is that the acquisition of Delphi will help BorgWarner offer more complete powertrain-related solutions to automakers as investments in hybrid and fully electric vehicles continue to grow -- all while remaining flexible, given that it's not yet clear how quickly consumers will be willing to adopt fully electric vehicles.
BorgWarner thinks the acquisition of Delphi will add about $0.31 per share in adjusted earnings annually, starting in 2022. It'll also save some money -- about $125 million per year by 2023 -- mostly through combining the two companies' procurement, sales, and marketing functions.
Long story short: If it plays out the way management expects, it looks like a pretty good deal for BorgWarner, too.