American Axle to buy Metaldyne Performance Group

American Axle to buy Metaldyne Performance Group

Detroit auto supplier American Axle and Manufacturing Holdings Inc. said Thursday it is buying Southfield-based Metaldyne Performance Group Inc. for $1.6 billion cash and stock and will assume $1.7 billion in debt.

The $3.3 billion deal, unanimously approved by both companies’ boards of directors, is expected to close in the first half of next year, pending shareholder and regulatory approvals. Executives say the deal could lead to job cuts, but it’s unclear how many or when they might occur.

American Axle shares closed down 17.6 percent Thursday to about $13.68 a share, while Metaldyne shares soared 34.3 percent to $19.20 a share.

Brian A. Johnson, a Barclays Capital Inc. analyst, said in a note to investors the deal was a “combination of two strong operational cultures,” but noted the combined net debt “could weight on the shares as the U.S. auto cycle erodes.”

American Axle, which makes axles, driveline and drivetrain parts and systems, said it will remain based in Detroit and David C. Dauch will remain chairman and CEO of American Axle.

“As a combined entity, we are bringing together two complementary Tier 1 organizations to create a premiere global manufacturer of world-class components, modules and subsystems across multiple engine, transmission and driveline applications,” Dauch said in a call with analysts. “We will become a stronger, well diversified leader in advanced powertrain, drivetrain and driveline technologies.”

Dauch said the merger will accelerate American Axle’s growth and diversification plans.

“The combined entity will be less reliant on General Motors as a customer and the North American light truck and SUV segment as a key end market, while increasing our global footprint, most notably in Europe,” Dauch said.

Metaldyne manufacturers lightweight powertrain and suspension components for light, commercial and industrial vehicles. It has more than 60 locations in 13 countries in North America, South America, Europe and Asia and employs about 12,000, including 1,000 across seven Michigan facilities. It generates about $3 billion a year in revenue.

“Combining forces with AAM offers MPG shareholders an immediate premium and as well as the opportunities to participate in the profitable growth potential of the combined organizations,” MPG CEO George Thanopoulos said .

Each share of MPG stock will be converted into $13.50 cash and 0.5 shares of American Axle stock. Once the deal closes, American Axle shareholders will own about 70 percent of the combined company, with Metaldyne owning about 30 percent.

American Axle said it entered into a definitive merger agreement with Metaldyne and it expects the combined company to have about $7 billion in revenue a year and to save about $100 million to $120 million a year in duplicated overhead, purchasing and other costs. Its annual profit margins are expected to grow from 14.6 percent to 16 percent.

Dauch said job cuts are possible, but is not yet know when or how many.

“We’re going to take a clean sheet approach to the organization,” Dauch said. “We’ll look at what are the skill sets we need for the jobs. Will there be some job displacement? Potentially.”

The combined company will have more than 90 locations in 17 countries. Dauch, in a conference call, said the combined company would have four operating business units including driveline, metal forming, powertrain and castings, with driveline being the biggest sales contributor.

Dauch said the acquisition will allow American Axle to lessen its business reliance even further with General Motors. In 2015, 66 percent of American Axle’s sales were from GM and under the combined company, that would fall to an estimated 32 percent by 2020, with Ford Motor Co. sales growing from just 1 percent in 2015 to an estimated 16 percent by 2020.

Dauch said it was too early to say what the management structure of the new company would look like. American Axle entered into an agreement with Metaldyne’s controlling shareholder, an affiliate of American Securities LLC, which agreed to vote for the merger. When the deal is complete, the affiliate of American Securities will be a minority shareholder of American Axle, owning about 23 percent of the company.