BorgWarner to spin off Fuel Systems and Aftermarket segments
By Mike Brezonick06 December 2022
Days after it acquired a German supplier of electrification technologies, global commercial vehicle and automotive supplier BorgWarner has announced its intention to execute a tax-free spin-off of its Fuel Systems and Aftermarket segments into a separate, publicly traded company.
“The BorgWarner board believes a strategic spin-off of our Fuel Systems and Aftermarket segments would be the best path forward to further the transformation of our company,” said Alexis P. Michas, non-executive chairman of BorgWarner. “The intended separation supports optimizing our combustion portfolio and advancing our electrification journey while NewCo (the new company) would be able to pursue growth opportunities in alternative fuels, such as hydrogen, and in aftermarket.
“Ultimately, we expect the intended separation to maximize shareholder value by having two focused and strong companies, each pursuing their respective strategies.”
“We are incredibly proud of the progress we are making executing our ‘Charging Forward’ strategy,” said Frédéric B. Lissalde, BorgWarner president and CEO. “At the same time, our electric vehicle (EV) business is accelerating. We believe we are already on track to exceed our 2025 organic EV sales target, and over the last two years, we have announced or completed four acquisitions.
“The intended separation of our Fuel Systems and Aftermarket segments would be an important next step to further our pivot to EVs and advance our vision of a clean, energy-efficient world, while at the same time creating a new, focused entity with strong financials to support its future. With Fuel Systems growing faster than the market and Aftermarket expected to benefit from favorable long-term trends, we believe NewCo would also be well positioned for success as a standalone public company.”
Following completion of the intended separation, BorgWarner would consist of the company’s current e-Propulsion & Drivetrain and Air Management segments. The company estimates that, after giving effect to the intended transaction, it is already on track with its organic bookings and acquisitions to date to deliver more than 22% of its revenue from electric vehicles by 2025, less than two years into the execution of its five-year strategy. With continued execution of its electrification growth initiatives, the Company believes that it would ultimately achieve or exceed its stated target of 25% of revenue from electric vehicles by 2025.
Through the first nine months of 2022, BorgWarner’s Air Management segment generated revenue of approximately $5.5 billion and segment adjusted operating margin of 13.7%, while its e-Propulsion and Drivetrain segment generated revenue of approximately $3.9 billion and segment adjusted operating margin of 6.9%.
Following the intended separation, BorgWarner said NewCo is expected to be a product leader in fuel systems and aftermarket distribution with balanced and synergistic exposure among commercial vehicle (CV), light vehicle (LV) and aftermarket end markets, as well as have broad regional exposures. NewCo is expected to benefit from its embedded relationships with global OEMs and focus on the global vehicle parc, which would be predominantly combustion-based through 2040. NewCo would also plan to capitalize on the growth trends in gasoline direct injection (GDI) and hydrogen injection systems.
Through the first nine months of 2022, the Fuel Systems segment generated revenue of approximately $1.7 billion and segment adjusted operating margin of 11.3%, while the Aftermarket segment generated revenue of just under $1.0 billion and segment adjusted operating margin of 14.5%.
Immediately following completion of the intended transaction, BorgWarner shareholders would own shares of both companies. BorgWarner expects to complete the transaction in late 2023, subject to satisfaction of customary conditions, including among others, final approval from the BorgWarner board.