Shares of U.K.-based auto-industry supplier Delphi Technologies (DLPH) soared on Tuesday, after the company announced that it has agreed to be acquired by U.S. rival BorgWarner (BWA 2.75%) at a substantial premium.
As of 1 p.m. EST, Delphi Technologies' shares were trading up about 60% from Monday's closing price.
Under the deal, Michigan-based BorgWarner will acquire Delphi Technologies in an all-stock deal that puts Delphi's enterprise value at $3.3 billion. Delphi shareholders will receive 0.4534 shares of BorgWarner stock for each Delphi share they hold -- a valuation that implies a purchase price of $17.39 per share.
Given that Delphi closed at $9.80 on Monday, that's a hefty premium. (It's a good deal for Delphi shareholders.)
The deal values Delphi's equity at about $1.5 billion; the remainder of the enterprise value is the Delphi debt that BorgWarner will assume when the deal closes.
At first look, it appears to be a good deal for BorgWarner too. Delphi focuses on electronics that integrate systems in vehicles; its product line is complementary to BorgWarner's comprehensive powertrain-related offerings. BorgWarner executives say that the deal will boost the company's business as the auto industry continues to move toward hybrid and electric vehicles and self-driving technologies.
The deal is expected to close in the second half of 2020, assuming that shareholders and regulators approve the terms. BorgWarner said that the Delphi acquisition will add about $0.31 per share in adjusted earnings annually, starting in 2022, and that cost savings will follow as the companies combine purchasing and marketing functions.