BorgWarner to acquire Delphi Tech for $4.9b

AUTOMOTIVE driveline component suppliers BorgWarner and Delphi Technologies have agreed to merge in a $US3.3 billion ($A4.9b) deal that will “create one of the leading pure-play propulsion companies globally”.

In addition to increasing BorgWarner’s earnings per share and achieving an estimated $US125m in cost efficiencies by 2023, the all-stock acquisition of Delphi Technologies will help boost the company’s presence in the commercial vehicle and automotive aftermarket sector.

Both BorgWarner and Delphi Technologies have been increasing their focus on the systems and components necessary for vehicle electrification, in parallel with developing technologies that improve combustion-engine fuel efficiency and reduce tailpipe emissions.

In a press release announcing the proposed acquisition, BorgWarner said that joining forces with Delphi Technologies was “consistent with BorgWarner’s evolution towards the propulsion market of the future and would enable BorgWarner to maintain flexibility across combustion, hybrid, and electric propulsion”.

Named BorgWarner, the merged company will be headquartered at the company’s existing base in the northern Detroit suburb of Auburn Hills, led by current BorgWarner CEO Frederic Lissalde and chief financial officer Kevin Nolan.

The acquisition will consign the Delphi name to automotive history books. The HVAC and engine cooling division Delphi Thermal was sold to German automotive supplier Mahle-Behr in 2015, after which Delphi Automotive Systems spun off its powertrain and aftermarket business in 2017 as Delphi Technologies in order to pursue autonomous vehicle technologies under the Aptiv brand.

Mr Lissalde said the merger with Delphi Technologies “will bring proven leading power electronics technologies, talent and scale that will complement our hybrid and electric vehicle propulsion offerings”.

“We have a great deal of respect for Delphi Technologies’ team around the world and look forward to welcoming them to BorgWarner. We are confident that together we will be able to move faster to address market trends toward electrification,” he said.

Subject to regulatory and shareholder approvals, the transaction will exchange 0.4543 shares of BorgWarner common stock for each Delphi Technologies share, valuing Delphi at $US3.3b and resulting in around 84 per cent of the combined company being owned by BorgWarner shareholders and the remaining 16 per cent by those of Delphi Technologies.

BorgWarner and Delphi Technologies respectively generated an estimated $US10.17b and $4.36b in the 2019 financial year.

Prior to the announcement, the terms of this agreement were given the green light by the boards of both companies. All going to plan, the transaction should be completed by the second half of this year. BorgWarner also plans to buy back up to $US1b in shares over the next three years.

Delphi Technologies CEO Richard Dauch described his company’s product portfolio as “highly complementary to BorgWarner’s”.

“Together we plan to create a pioneering propulsion technologies company uniquely equipped to serve OEMs and aftermarket customers around the world,” he said.

“BorgWarner’s team shares our focus on addressing today’s and tomorrow’s challenges, and the combination will create exciting opportunities for our employees.”

In recent months, BorgWarner has been squarely positioning itself for leadership in what it calls “propulsion systems” and created a website about the merger with Delphi Technologies with the domain name leadingpropulsion.com.

A year ago the company sold off a thermostat business that came packaged with its acquisition of an exhaust gas recirculation valve manufacturer in 2014, deeming thermostats “not core to BorgWarner’s strong focus on propulsion systems for combustion, hybrid and electric vehicles”.

Soon afterward BorgWarner acquired and combined two small Ohio-based businesses to create a new company called Cascadia Motion that “specialises in design, development and production of hybrid and electric propulsion solutions for prototype and low-volume production applications”.

Delphi Automotive Systems was created in 1995 when General Motors renamed the Automotive Components Group it had formed a year prior from 15 of its in-house parts divisions.

GM sold Delphi in 1999, only for the company to go through a messy bankruptcy between 2005 and the global financial crisis, culminating in various parts of the company being sold off in 2009 and the core assets being rescued by a consortium of private investors who re-established Delphi out of headquarters in London.