BorgWarner Inc. has struck a deal to acquire Delphi Technologies in an all-stock transaction worth about $3.3 billion, the companies announced Tuesday morning.
The deal will unite two auto suppliers positioning for the industry’s shift to hybrid and electric vehicles.
“This exciting transaction represents the next step in BorgWarner’s balanced propulsion strategy, strengthening our position in electrified propulsion as well as our combustion, commercial vehicle and aftermarket businesses,” Frédéric Lissalde, president and CEO of Auburn Hills-based BorgWarner, said in a news release. “Delphi Technologies will bring proven leading power electronics technologies, talent and scale that will complement our hybrid and electric vehicle propulsion offerings. As a combined company, we look forward to delivering enhanced solutions to our customers while driving increased value for our stockholders.”
Under the terms of the agreement, which has been approved by the boards of directors of both companies, Delphi Technologies stockholders would receive 0.4534 shares of BorgWarner common stock per Delphi Technologies share. Upon closing of the transaction, current BorgWarner stockholders are expected to own approximately 84 percent of the combined company, while current Delphi Technologies stockholders are expected to own approximately 16 percent.
The deal is expected to close in the second half of the year.
Delphi Technologies (NYSE: DLPH) has a market value of about $844 million and around $1.5 billion in long-term debt, according to filings. BorgWarner (NYSE:BWA), is worth about $7.9 billion.
BorgWarner’s biggest deal to date is the $950 million acquisition of Remy International in 2015, according to data compiled by Bloomberg.
Both companies’ engine and transmission businesses are seen by analysts as entering a period of decline as carmakers consolidate and invest in the development of electric cars. They’ve been investing in products automakers will need for hybrid models that use both gasoline engines and battery power, as well as fully electric vehicles.
“This could be the beginning of powertrain consolidation, which is coming out of necessity,” said Chris McNally, an analyst with Evercore ISI. “All the suppliers are dealing with lower global volumes combined with the transition towards electric vehicles, which requires heavy investment.”.
Forced by governments around the world to improve fuel efficiency and cut emissions, automakers are turning to smaller, lighter engines and electrifying their lineups. The industry has also been hit by sluggish economic growth and the U.S. trade war with China.
Delphi Technologies, based in the U.K. with a Customer Technical Center in Auburn Hills, was one of two companies to split from Delphi Automotive in 2017. The other was Aptiv Plc, focused on new technology including advanced safety systems and self-driving car software. The split left the smaller Delphi Technologies to focus on supplying engine and transmission parts.
Delphi was the world’s largest parts maker when General Motors Co. spun off the company in 1998.
Its stock has been on a steady decline since the spinoff, down more than 25 percent year-to-date at $9.80 per share before Tuesday’s market open.
BorgWarner has faired slightly better, thanks to its $951 million acquisition of alternator supplier Remy International Inc. in 2015.
“What we needed was great electromechanical product, turbochargers, dual clutches, all of those products we have in spades. What we needed to complement that is motor technology. And the third leg of that stool for us is power electronics capability,” then-CEO James Verrier, told Crain’s in 2016. “Remy clearly brings that motor expertise to us. From a power electronics perspective, we’ve been building that capability up pretty aggressively organically. So, that positions us to be in a very strong position to couple our conventional products with a suite of products for 48-volt systems, hybrids and increased electrification.”
It was all part of the company’s stated plan to reach $15 billion in revenue by 2020.
BorgWarner is expected to fall well short of that goal, projecting total 2019 revenue of $9.95 billion to $10.1 billion, according to its third quarter earnings.
BorgWarner shares year-to-date have dropped 12.7 percent to $38.36 before Tuesday market open.. .