Cummins Inc. on Tuesday said it intends to acquire a Michigan-based truck parts supplier to add axles and brakes for hybrid and electric powertrains to its portfolio in a $3.7 billion deal.
Meritor Inc. shares were rising 45% on the news Tuesday morning. Cummins' were up less than 1%.
The Indiana-based manufacturer of generators, diesel engines and other components will pay $36.50 in cash per Meritor share, a 48% premium over its Friday closing price. Cummins will assume debt and net of acquired cash in the agreement. The deal is expected to close before the end of 2022 and is subject to regulatory approval.
It's a sign Cummins realizes heavy-duty trucks need to reduce carbon emissions and become more environmentally friendly. Under the larger umbrella of Cummins that has 59,900 employees, Meritor will have more opportunities to accelerate its investment in technologies to do just that.
"Climate change is the existential crisis of our time and this acquisition accelerates our ability to address it," Cummins CEO Tom Linebarger said in a statement. "Our customers need economically viable decarbonized solutions."
Linebarger highlighted cost savings from selling, general and administrative expenses, greater buying power and facilities optimization from the acquisition. Cummins expects $130 million in annual pre-tax run-rate cost saving three years after the deal closes.
On the possibility of location closure or layoffs, Cummins spokesman Jon Mills said in an email: "We are at a very early stage in the process. Meritor is a terrific company with great employees who have deep expertise and experience in technologies and manufacturing that are critical to the future."
Meritor's roots date to more than 110 years ago. It employs more than 9,600 employees to supply components for commercial truck, trailer, off-highway, defense, specialty and aftermarket customers
"Customers," Meritor CEO Chris Villavarayan said in a statement, "will benefit from enhanced capabilities in technology and the ability to accelerate investment in axle and brake development and EV adoption."
