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Cummins (CMI) to Takeover Meritor (MTOR) in $3.7 Billion Deal

Cummins Inc. CMI recently announced that it will acquire Meritor, Inc. MTOR to reinforce its electric and hybrid vehicle parts offerings. The deal comes at a time when the demand for climate-friendly transport is on the rise.

Details of the Deal

The deal has a purchase price of $3.7 billion, out of which Cummins will pay $2.58 billion in cash. Per the agreement, the company will pay $36.50 per share in a combination of cash and debt to Meritor, and the valuation price is at a premium of 48% above MTOR’s closing price on Feb 18, 2022.

The transaction is subject to customary closing conditions and applicable regulatory approvals as well as Meritor shareholder approval. It is expected to close by the end of the calendar year.

Morgan Stanley & Co. LLC and Mayer Brown are the financial and legal advisors to Cummins, respectively. J.P. Morgan Securities LLC and Wachtell, Lipton, Rosen & Katz are serving as financial and legal advisors to Meritor, respectively.

Highlights

The most vital aspect of the buyout is its address to mitigating climate concerns. It harps on the pressing need to incorporate descarbonized solutions. Meritor’s market repute will empower Cummins to be a provider of integrated powertrain solutions across combustion and electric power applications. By aiding Meritor’s investment in electrification and integrating development within its New Power business, Cummins seeks to offer market-leading solutions.

The acquisition will add products to the company’s components business independent of powertrain technology and will boost the growth in Meritor’s core axle and brake businesses. Significant synergies are also expected in SG&A, supply chain operations and facilities optimization.

The acquisition is expected to immediately add to Cummins’ adjusted earnings per share and generate annual pre-tax run-rate synergies of nearly $130 million in the third year after closing.

Zacks Rank & Key Picks

Currently, Cummins has a Zacks Rank #4 (Sell).

Better-ranked players in the auto space include Tesla TSLA, sporting a Zacks Rank #1 (Strong Buy) and Dorman Products DORM, carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesla has an expected earnings growth rate of 40.7% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised around 22.3% upward in the past 60 days.

Tesla’s earnings beat the Zacks Consensus Estimate in all of the trailing four quarters. TSLA pulled off a trailing four-quarter earnings surprise of 33.3%, on average. The stock has also rallied 10.7% over a year.

Dorman has an expected earnings growth rate of 16.8% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised around 0.2% upward in the past 60 days.

Dorman’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and met the consensus mark in one. DORM pulled off a trailing four-quarter earnings surprise of 2.35%, on average. The stock has declined 6.1% over a year.


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Cummins Inc. (CMI): Free Stock Analysis Report
 
Meritor, Inc. (MTOR): Free Stock Analysis Report
 
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Dorman Products, Inc. (DORM): Free Stock Analysis Report
 
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