Detroit-based auto-parts maker American Axle & Manufacturing (AAM) has agreed to acquire Metaldyne Performance Group (MPG) in a transaction worth about $3.3bn.
MPG provides lightweight components for use in powertrain and suspension applications for the worldwide light, commercial and industrial vehicle markets.
Under the definitive merger deal, AAM would acquire the recently formed MPG for $1.6bn in cash and stock and assume $1.7bn in debt.
AAM spun out of General Motors more than two decades ago. The deal is believed to lower American Axle’s dependence on General Motors.
Metaldyne shareholders will get $13.50 in cash and half of an American Axle share, or a total of $21.81 per share.
After the deal's closure, AAM’s shareholders will own about 70% of the combined company and MPG’s shareholders will own about 30%.
The transaction, which has been accepted by board of directors of both the companies, is expected be completed in the first half of 2017.
It still needs approval from regulatory authority and other customary closing conditions need to be fulfilled.
AAM chairman and CEO David Dauch said: "AAM's transformational acquisition of MPG brings together two complementary Tier 1 organizations to create a company with greater scale and increased diversity across products, customers and end markets.
"MPG's expertise in complex, highly-engineered powertrain components and its global footprint will be tremendous assets to AAM. We are excited about the powerful industrial logic in this combination that will allow us to create additional value for our customers and other key stakeholders.
“Together, we are forming a company with increased earnings potential and enhanced cash flow generation that will allow us to rapidly reduce leverage while fueling growth and delivering value to our shareholders."
AAG said the merger will create a global player in powertrain, drivetrain and driveline business with a capacity to deliver a wide range of precision engineered components, modules, sub-systems for several engine, transmission and driveline applications.
The merger can also help in developing light-weight, fuel efficient, high performance vehicles with higher safety standards.
The combined company is expected to have consolidated sales revenue of $7bn per annum with a potential to generate about $1.2bn of EBITDA and $400m of free cash flow after full integration.
MPG CEO, George Thanopoulos said: "This compelling transaction offers MPG shareholders an immediate premium and significant participation in the growth potential of the combined organization and its talented associates.
“MPG and AAM share a similar culture and value system, laser focused on quality, operational excellence and technology leadership, which creates a natural fit and clear path to value creation for stakeholders of both companies."
