CNH Splitting On-Highway and Off-Highway Businesses

By Mike Osenga03 September 2019

As part of a sweeping five year reorganization plan it is calling ‘Transform 2 Win,’ CNH Industrial N.V. is announcing it will separate its on-highway (commercial vehicles and powertrain) segment and its off-highway business (agriculture, construction and specialty) resulting in the creation of two listed entities,

The announcements were being made at its Capital Markets Day event in New York on September 3rd.

CNH said the plan to separate its on-highway and off-highway businesses is a decision that the company said follows, “the completion of a deep portfolio review process, taking into account, among other things, strategic, investor, and synergy considerations. This review highlighted that the on-highway and off-highway businesses have diverging regulatory and customer requirements and are impacted differently by the accelerating industry megatrends of digitalization, automation, low-/zero-emission propulsion and servitization.”

Further, CNH said, “the spin-off of the on-highway assets will maximize management focus and flexibility, align investment priorities and incentives, better meet respective business needs and optimize the cost and capital structure of each company to drive profitable growth.

“It will further strengthen the leadership positions of both the on-highway and the off-highway businesses, better position them to achieve their ambitious plan targets, as well as optimize their shareholder value creation potential. As the process of separating the two businesses progresses, the financial plan highlights, as well as restructuring actions, will be disaggregated into separate pro-forma plans for each company,” the initial CNH announcement said.

The off-highway portion, with 2018 pro-forma industrial activities revenues of $15.6 billion, will be predominantly an agriculture company (75% of revenue) supported by the construction business (19% of revenue) and specialty vehicles (6% of revenue). It will include the Case IH, New Holland Agriculture and Steyr brands and, “will build on their market positions, further strengthened product line-ups and improved distribution, and accelerated investment in automation and digitalization activities,” CNH said.

Case Construction Equipment and New Holland Construction, as well as Astra heavy duty quarry trucks, will focus on improving profitability, product range simplification and growing share in application specific  segments. Defense vehicles and Magirus firefighting will further develop its offerings for these specialized customer bases, CNH added.

The newly listed on-highway company, with 2018 pro-forma industrial activities revenues of $13.1 billion, will comprise the Iveco, Iveco Bus and Heuliez Bus commercial vehicle brands (69% of revenue), together with the FPT Industrial powertrain business (31% of revenue).

Regarding its powertrain operations, CNH said FPT Industrial will continue to offer powertrain solutions and accelerate the development of alternative propulsion solutions. FPT Industrial will remain a supplier to the off-highway business through a long-term supply agreement.

“With our ‘Transform 2 Win’ strategy we are setting an exciting new direction for our company. By developing ambitious yet achievable targets for each segment and reorganizing our structure to create two global leaders, all of our great businesses will be better able to realize their full potential in terms of financial performance, shareholder and broader stakeholder value generation and sustainability commitments,” said Hubertus Mühlhäuser, chief executive officer, CNH Industrial.

“Our clear assessment of the key megatrends, that are rapidly changing the business landscape, has led us to embrace this challenge and transform the company. Benefitting from greater management focus, the two companies will accelerate their innovation, be nimbler in their strategic thinking and actively participate in industry consolidation. This is all thoroughly consistent with our strategic purpose of ‘powering sustainable transformation,’” he said.

The new on-highway company will have a legal structure based on that of CNH Industrial N.V., with the spin-off expected to be completed in early 2021, subject to approval at an extraordinary general meeting of shareholders, which is anticipated to be held in later 2020.

 

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