BorgWarner to buy Delphi for US$1.5b in auto-parts deal

[NEW YORK] BorgWarner agreed to acquire Delphi Technologies for about US$1.5 billion in an all-stock deal that unites two auto suppliers positioning for the industry's transformational shift to hybrid and electric vehicles.

The deal values Delphi Technologies at about US$3.3 billion including debt, according to a statement Tuesday. Its shares surged a record 66 per cent to US$16.30, the highest intraday since September. BorgWarner plunged as much as 8.4 per cent to US$35.14, the lowest since October.

Both BorgWarner and Delphi's engine and transmission businesses are expected to enter a period of decline as carmakers consolidate and pivot to electric cars. The suppliers have been investing in products automakers will need for hybrid models that use both gasoline engines and battery power, as well as fully electric vehicles.

"This could be the beginning of powertrain consolidation, which is coming out of necessity," Chris McNally, an analyst with Evercore ISI, said before the announcement. "All the suppliers are dealing with lower global volumes combined with the transition toward electric vehicles, which requires heavy investment."

Delphi Technologies stockholders will receive 0.4534 BorgWarner shares for each Delphi Technologies share held. That would represent a premium of about 77 per cent to Delphi Technologies' closing price Monday.

BorgWarner stockholders would own about 84 per cent of the combined company, while current Delphi Technologies owners would hold 16 per cent, according to the statement. The companies said they see cost savings of about US$125 million by 2023.

The announcement by BorgWarner confirmed an earlier report by Bloomberg News. The deal is the Auburn Hills, Michigan-based company's biggest acquisition to date, surpassing its purchase of Remy International for about US$950 million in 2015, according to data compiled by Bloomberg.

BorgWarner's biggest customers are Ford Motor and Volkswagen, while Delphi Technologies' are Daimler and General Motors, according to data compiled by Bloomberg.

Evercore's McNally called the deal a "life raft" for an industry in evolution and said their portfolios are more complementary than significantly overlapping.

Forced by governments around the world to improve fuel efficiency and cut emissions, automakers are turning to smaller, lighter engines and electrifying their lineups. The industry has also been hit by sluggish economic growth and the US trade war with China.

Delphi Technologies, based in Gillingham, England, was one of two companies to split from Delphi Automotive in 2017. The other was Aptiv, focused on new technology like advanced safety systems and self-driving car software. The split left the smaller Delphi Technologies to focus on supplying engine and transmission parts.

Delphi was the world's largest parts maker when General Motors spun off the company.

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