Blog Coverage AAM Acquires Metaldyne Performance Group to Create a Diversified Global Powerhouse for Powertrain, Drivetrain and Driveline Solutions

LONDON, UK / ACCESSWIRE / November 4, 2016 / Active Wall St. blog coverage looks at the headline from American Axle & Manufacturing Holdings Inc. (NYSE: AXL) (“AAM”) as the company announced, in a historic deal within the auto components sector, that it has finalized a merger agreement with Metaldyne Performance Group Inc. (NYSE: MPG). The merger announced on November 03, 2016, will create a diversified global powerhouse for Powertrain, Drivetrain, and Driveline Solutions. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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AAM is a leading designer and manufacturer of driveline systems, chassis systems, and forged products for trucks, SUVs, buses, and passenger cars with 13,000 employees and operations globally.

Metaldyne Performance Group (“MPG”) was the result of the merger of Grede Holdings LLC, HHI Group Holdings, and Metaldyne LLC in 2014. MPG’s operations are spread over 60 locations in 13 countries with approximately 12,000 employees.

AAM and MOG complement each other and the merger will add to their strengths.

Commenting on the merger, David C. Dauch, Chairman and CEO of AAM said:

“MPG’s expertise in complex, highly-engineered powertrain components and its global footprint will be tremendous assets to AAM.”

Terms of the merger

As per agreed terms of the merger, AAM will pay MPG $1.6 billion in cash for all the outstanding shares and $1.7 billion towards clearing its debts. AAM plans to pay $13.50 in cash and 0.5 share of AAM for each MPG shares. On completion of the merger, AAM’s stockholders will own approximately 70% of the merged entity and MPG’s stockholders would own the remaining 30%. The deal is expected to close in the first half of 2017 subject to statutory approvals. AAM plans to use a combination of cash in hand and fresh debt to finance the merger.

AAM has parallelly signed a voting agreement with MPG’s majority shareholder, an affiliate of American Securities LLC, to vote in favour of the said merger.

The new AAM – MPG merged entity

Once the merger is completed, MPG will become a wholly-owned subsidiary of AAM. The merged entity will be headquartered in Detroit and David C. Dauch the current Chairman and CEO of AAM will continue to be the new Chairman and CEO. On finalization of the merger, the affiliate of American Securities LLC will own approximately 23% equity in the new entity.

The new merged entity will operate four manufacturing business units – Driveline, (axles and drive shafts), Metal forming (gears, axle shafts, suspension components), Powertrain, (differential assemblies, valve bodies, etc.), Castings, (axle carriers and steering knuckles) with Driveline being the biggest sales contributor.

Benefits of the merger

Intrinsic benefits

Once the merger is final, the merged AAM–MPG entity is set to rule the powertrain, drivetrain, and driveline sector globally. With the merger, AAM will be able to diversify its global product portfolio to include highly-engineered lightweight components for the light, commercial, and industrial vehicle markets. The merged entity will be able to offer its expertise in complementary product, process, and systems technology and set new trends in both mechanical and alternative propulsion systems.

AAM, which is largely dependent on General Motors for approximately 66% of its revenues, will be able to reduce its dependence on GM to 41% of its revenues as a result of the merger. The merged entity plans to further reduce this dependence to 32% by end of 2020. Furthermore, AAM–MPG plans to gain from MPG’s client, Ford Motors, which accounts for 1% of revenues as of 2015, by increasing the revenue contribution to approximately 16% by 2020.

Financial benefits

AAM–MPG merged entity will create a financial behemoth in terms of size, scale, and enhanced cash flow generation. On completion, the merged entity is expected to generate around $7 billion in revenues, over $1.2 billion of EBITDA, and approximately $400 million in cash flows. The merged entity is expected to contribute accretive to cash flow and EPS within a year of the merger. The merged entity will also be able to save $100 million – $120 million annually in terms of run-rate cost synergies.

MPG which has a strong free cash flow profile and profitability metrics will enable AAM to improve its operational profitability and increased cash flows, which will in turn help AAM to reduce its debt. AAM is targeting a Net Debt/ Adjusted EBITDA ratio of 2x by the end of 2019.

In August 2016, AAM had announced the opening of its $30 million Advanced Technology Development Centre. The tech centre will focus on accelerated deployment of new technology, warranty analysis, competitive assessment, advanced machining, prototype development and supplier collaboration. How AAM plans to integrate MPG’s engineering operations into the centre post-merger has not been disclosed.

Stock Performance

On Thursday, November 03, 2016, AAM’s shares tumbled 17.64%, finishing the day at $13.68. A total volume of 8.36 million shares have exchanged hands by the end of the day, which was higher than the 3-month average volume of 1.01 million shares. Shares of the company have a PE ratio of 4.19 and currently have a market cap of $1.03 billion.

Metaldyne Performance Group’s stock skyrocketed 34.27%, closing yesterday’s session at $19.20 on volume of 4.32 million shares. The company’s shares are trading a PE ratio of 12.06 and have a dividend yield of 1.93%. The stock has a market cap of $1.29 billion at the end of Thursday’s session.

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