Tenneco, one of the world’s leading designers, manufacturers and distributors of Ride Performance and Clean Air products and technology solutions for diversified markets, signed a definitive agreement to acquire Federal-Mogul, a leading global supplier to OEMs and the aftermarket. Tenneco is acquiring Federal-Mogul from Icahn Enterprises L.P. for a total consideration of $5.4 billion to be funded through cash, Tenneco equity and assumption of debt.
Tenneco also announced its intention to separate the combined businesses into two independent, publicly traded companies through a tax-free spin-off to shareholders that will establish an aftermarket & ride performance company and a powertrain technology company.
The acquisition is expected to close in the second half of 2018, subject to regulatory and shareholder approvals and other customary closing conditions, with the separation occurring in the second half of 2019.
Powertrain Technology Company. The powertrain technology company will be one of the largest pure-play powertrain suppliers through the combination of Tenneco’s Clean Air product line and Federal Mogul’s Powertrain business.
The combined business will offer a robust portfolio of products and systems solutions from the engine to the tailpipe to improve engine performance and meet tightening criteria pollutant regulations and fuel economy standards.
Tenneco expects that the new company, with its global scale, will drive content growth due to the demand for improved engine performance, tightening emissions regulations, light vehicle hybridization and expanded market opportunities with commercial truck and off-highway customers.
Aftermarket & Ride Performance Company. The strategic combination of Tenneco’s Ride Performance business with Federal-Mogul’s Motorparts business will establish a global portfolio of some of the strongest brands in the aftermarket including Monroe, Walker, Wagner, Champion, Fel-Pro and MOOG. Tenneco expects that the new company’s broader aftermarket product coverage, stronger distribution channels, and enhanced channel development will strengthen its position in established and high-growth markets (China and India), and drive success through new mobility models and capturing evolving e-commerce opportunities.
On the OE side of the business, the combination creates a portfolio of braking and advanced suspension technologies and capabilities that set the foundation for meeting changing performance requirements for comfort and safety, and ultimately reinventing the ride of the future with new solutions for ride differentiation and capitalizing on electrification and autonomous driving trends.
Tenneco outlined its strategic rationale for separating the companies:
Strategically positions each company: focused, purpose-built leaders in their respective markets with the strategic and financial flexibility to drive long-term value creation.
Scales each company to win: size, broader product portfolios and greater capabilities to capitalize on industry trends unique to each.
Enhances capabilities to capture growth with focused investments.
Provides investors with distinct investment opportunities: two strong companies that have specific growth, capital deployment and product profiles.
Summary Terms of Agreement. Tenneco will acquire Federal-Mogul for $5.4 billion through a combination of $800 million in cash, 5.7 million shares of Tenneco Class A common stock (representing a 9.9% voting interest), 23.8 million shares of Non-Voting Class B common stock and assumption of debt. Under the agreement, Tenneco can reduce the number of shares of Class B Non-Voting common stock by up to 7.3 million shares and increase the cash consideration proportionately at the closing.
Tenneco has put in place committed debt financing to fund the transaction, which will replace Tenneco’s existing senior credit facilities and certain senior facilities at Federal-Mogul.
Upon closing, Tenneco expects a pro forma net debt-to-adjusted EBITDA ratio of approximately 3x. The company is targeting a net debt-to-adjusted EBITDA ratio of approximately 2.5x by the end of 2019.