BorgWarner Inc. agreed to buy Remy International Inc. for $951 million in cash, driving further consolidation of the auto-parts industry.
BorgWarner will pay $29.50 a share, a 44 percent premium from Remy’s closing price on Friday, according to a statement Monday. The price indicates an enterprise value of about $1.2 billion, BorgWarner said. The maker of turbochargers and transmission parts said the deal is set to close in the fourth quarter and should add to earnings in the first year because of purchasing efficiencies and other savings.
Demand for fuel-saving technology and global scale is pushing auto-parts makers to consolidate. In May, TRW Automotive Holdings Corp. was acquired by German auto supplier ZF Friedrichshafen AG for $12.4 billion.
“Our main focus has been organic growth, and that remains a prime path for us,” James Verrier, chief executive officer of BorgWarner, said on a conference call. “But we’ve also been consistent about the need for M&A to add key technology to sustain that growth.”
The acquisition highlights the increasing importance of the electrification of the powertrain, which has not been a strength of BorgWarner’s, Verrier said.
BorgWarner rose 2.2 percent to $54.79 at the close in New York, as Remy soared 42 percent to $29.24. Remy has climbed 40 percent this year and BorgWarner has declined 0.3 percent.
Turbochargers, a key product for Auburn Hills, Michigan-based BorgWarner, compress air to maximize the power an engine produces. Automakers, forced by governments in the U.S., Europe and Asia to improve fuel efficiency and reduce emissions, are turning to smaller, lighter engines. They’re using turbos to give buyers the power and acceleration they still want.
Buying Remy will add alternators, starters and hybrid motors, giving BorgWarner the ability to benefit as more powertrains blend electric power with traditional gasoline-fueled technology.
Some investors had been concerned that the move to hybrid engines would eventually cause BorgWarner to lose sales to automakers, Joseph Spak, an analyst with RBC Capital Markets, wrote in a research note Monday.
BorgWarner Chief Financial Officer Ron Hundzinski said he expects savings from the acquisition of at least $15 million annually within two years, in part by eliminating duplicate costs associated with a public company, and from lower purchasing expenses. He said he expects the Remy business to have profit margins in the mid-teens, similar to BorgWarner’s.
Former GM Unit
Remy International, formerly known as Delco Remy, traces its roots to brothers Frank and Perry Remy, who developed magnetos, generators that used magnets to help start early automobiles. GM acquired Delco Remy in 1918 and spun it off in
1995. The name was changed to Remy International in 2004 and the Pendleton, Indiana-based company spent less than two months in bankruptcy in 2007.
UBS AG was financial adviser to Remy, while Sullivan & Cromwell LLP provided legal advice, according to the company’s statement. Bank of America Corp. acted as financial adviser to BorgWarner, and Sidley Austin LLP provided legal advice.