Icahn Enterprises L.P. has announced entrance into a definitive agreement to sell its indirect wholly owned subsidiary Federal-Mogul LLC to Tenneco Inc. for $5.4 billion.
The sale price is comprised of $800 million in cash and 29.5 million shares of Tenneco common stock, of which 23.8 million shares will be non-voting shares that will convert to voting shares if and when sold. There will be restrictions on how much Tenneco stock can be sold within the first 150 days after the closing. Under the agreement, Tenneco can reduce the amount of non-voting common stock by up to 7.3 million shares and increase the cash consideration proportionately at the closing. The voting and non-voting shares of Tenneco common stock will have the same economic value. Tenneco will also assume all debt of Federal-Mogul.
In connection with the sale, Tenneco announced its intention to separate the combined businesses into two independent, publicly traded companies through a tax-free spin-off to its stockholders that will establish an aftermarket & ride performance company and a powertrain technology company.
The sale is expected to close in the second half of 2018, subject to regulatory approvals, approval by Tenneco stockholders and other customary closing conditions, with the separation anticipated to occur in the second half of 2019. The sale is not subject to any financing condition.
Carl C. Icahn, Chairman of Icahn Enterprises, stated: “Icahn Enterprises acquired majority control of Federal-Mogul in 2008 when we saw an out-of-favor market opportunity for a great company. During that time, we have built one of the leading global suppliers of automotive products. I am very proud of the business we have built at Federal-Mogul and agree with Tenneco regarding the tremendous value in the business combination and separation into two companies. We expect to be meaningful stockholders of Tenneco going forward and are excited about the prospects for additional value creation. This transaction is an excellent example of our general modus operandi at Icahn Enterprises, by which we seek to acquire undervalued assets, nurture, guide and improve their condition and operations, and ultimately develop them into more valuable businesses, which greatly enhances value for all shareholders.”
Brian Kesseler, CEO of Tenneco, stated: “This is a landmark day for Tenneco with an acquisition that will transform the company by creating two strong leading global companies, each in an excellent position to capture opportunities unique to their respective markets. Federal-Mogul brings strong brands, products and capabilities that are complementary to Tenneco’s portfolio and in line with our successful growth strategies. Unleashing two new product-focused companies with even stronger portfolios will allow them to move faster in executing on their specific growth priorities.”
- Transformational acquisition accelerates long-term value creation by creating two focused, purpose built industry leaders in their respective markets with greater scale, and strategic and financial flexibility.
- Brings together complementary businesses – the aftermarket and ride performance company will include Tenneco Ride Performance and Federal-Mogul Motorparts, and the powertrain technology company will include Tenneco Clean Air and Federal-Mogul Powertrain.
- The aftermarket & ride performance original equipment company will be one of the world’s leading multi-line aftermarket and OE suppliers with:
- Premier aftermarket brands, broad product coverage and strong distribution;
- A strong portfolio of OE braking and advanced suspension technologies and capabilities;
- An outstanding strategic position to 1) improve go-to-market capabilities in the Americas and EMEA regions, 2) capture Asia Pacific aftermarket growth, and 3) capitalize on new OE trends in mobility, electrification/autonomous driving.
- The powertrain technology company will be one of the largest pure play powertrain suppliers globally with:
- A portfolio of engine-to-tailpipe products and system solutions;
- An excellent position to capture content growth due to 1) the demand for improved engine performance, 2) tightening fuel economy and criteria pollutant regulations, 3) light vehicle hybridization trends, and 4) commercial truck and off-highway expansion opportunities.
- Acquisition expected to be value accretive and generate synergy opportunities of at least $200 million in annual earnings and $250 million in working capital.
Aftermarket & Ride Performance Company
The strategic combination of Tenneco’s Ride Performance business with Federal-Mogul’s Motorparts business will establish a global aftermarket leader with an impressive portfolio of some of the strongest brands in the aftermarket including Monroe®, Walker®, Wagner, Champion, Fel-Pro and MOOG. The 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.
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, bringing together market leaders with reputations for innovation in meeting the changing needs of customers. 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. With its global scale, the company 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.
Strategic Rationale for Separated 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.
“Today’s announcement is an extension of Tenneco’s proven strategies for delivering profitable growth and will accelerate each company’s ability to capitalize on trends that are fundamentally changing our industry,” said Gregg Sherrill, executive chairman, Tenneco. “This is a major step forward in building an even stronger position with the combination of strategically aligned companies and the subsequent separation of the businesses, realigned in such a way to unlock shareholder value.”