American Axle & Manufacturing (AAM) announced that it reached an agreement with the board of the Dowlais Group on the terms of a recommended cash and share offer to be made by AAM for the entire issued and to be issued ordinary share capital of Dowlais for about $1.44 billion in cash and AAM shares.
With a combined portfolio of products essential in the manufacturing of internal combustion engines (ICE), hybrid and electric vehicles (EV), combined with an enhanced cost structure, the combined company will be well-positioned to serve a diverse customer base spanning multiple geographies and support changing propulsion trends as the industry continues to evolve.
Under the terms of the deal, Dowlais shareholders will be entitled to receive for each share of Dowlais’ common stock: 0.0863 shares of new AAM common stock, 42 pence per share in cash, and up to a 2.8 pence of Dowlais FY24 final dividend before closing. Upon closing the transaction, AAM shareholders are expected to own approximately 51% of the combined group, and Dowlais shareholders will own approximately 49%.
Based on AAM’s closing share price and the Sterling to Dollar exchange rate on 01/28/2025, the terms of the combination represent a total implied value of 85.2 pence per Dowlais share and value the entire issued and to be issued ordinary share capital of Dowlais at approximately £1.16 billion on a fully diluted basis.
This deal represents a 25% current premium to Dowlais’ January 28, 2025 closing share price and a 45% premium to Dowlais’ volume-weighted average share price for the three months ended January 28, 2025.
There are strategic reasons that make this combination very compelling, and these include:
1.) Creates a leading global driveline and metal-forming supplier with significant size and scale
2.) Comprehensive powertrain-agnostic product portfolio with leading technology
3.) Diversified customer base with expanded and balanced geographic presence
4.) Compelling industrial logic with approximately $300 million synergies
5.) High margins with substantial earnings accretion, cash flow, and balance sheet
On a 2023 non-adjusted basis, this combined company generated about $12 billion in annual revenue. And AAM expects the deal to have high earnings accretion in the first full year following the close of the transaction.
The cash portion of the consideration will be funded through a combination of cash on hand and debt. And the deal is expected to be approximately net leverage neutral at closing (before synergies).
The combined company’s improved financial profile and free cash flow generation are expected to support investment in future growth initiatives and accelerate leverage reduction in the near term while targeting a more balanced capital allocation policy below 2.5 times net leverage.
The boards unanimously approved the deal of directors of AAM and Dowlais. Following the deal’s closing, the combined company will be headquartered in Detroit, MI, led by David C. Dauch, AAM’s Chairman and CEO.
Effective as of the closing of this deal, two independent directors of Dowlais, Simon Mackenzie Smith, and Fiona MacAulay, are expected to join the board of the combined group. Plus, four Dowlais executives will be invited to join the AAM executive leadership team.
JPMorgan is acting as AAM’s exclusive financial advisor and providing committed debt financing for the deal, with Allen Overy Shearman Sterling acting as the legal advisor. Barclays Bank and Rothschild & Co are acting as financial advisors to Dowlais, with Slaughter and May acting as legal advisors.
KEY QUOTES:
“This announcement marks another key milestone in our continued long-term strategic growth plan. We are excited to bring together these two outstanding companies to create a leading driveline and metal-forming supplier serving the global automotive industry as it continues to evolve. The combination will create significant immediate and long-term shareholder value while helping to power a more sustainable future. Together with Dowlais, we will have the powertrain-agnostic product portfolio, global reach, commitment to innovation and financial strength to meet the needs of customers and succeed in a dynamic market environment.”
– David C. Dauch, AAM’s Chairman and Chief Executive Officer
“The Dowlais Board is unanimous in its view that the proposed combination with AAM offers a compelling opportunity to unlock value for our shareholders. The strategic rationale for the combination is clear: together, we create a global leader with enhanced financial strength, broader diversification and a market-leading product portfolio that spans traditional and electrified powertrain solutions. Importantly, our shareholders will benefit not only from an immediate premium, but also from the significant synergies that this combination will deliver. Whilst the Dowlais Board remain confident in our stand-alone strategy, this transaction creates significant shareholder value while ensuring that our outstanding businesses continue to shape the future of mobility.”
– Simon Mackenzie Smith, Dowlais’ Chair
“Today’s announcement marks a significant opportunity to build on the success of Dowlais Group. The combination of the two companies accelerates the execution of our strategy by leveraging our combined scale, resources, capabilities, and outstanding management teams. Our product portfolios and technological expertise are highly complementary, positioning us to better serve our customers and exceed their expectations. This transaction also combines our respective strengths in innovation, technology, and talent, creating a solid foundation for delivering long-term value to our shareholders. Our shared vision is to be a leading supplier of power-agnostic products as the world transitions to electrified mobility while maintaining operational excellence and driving sustainable growth, improved margins, and stronger cash flow generation. Together, we will unlock significant synergies, accelerate innovation, and position the combined group for long-term success in a dynamic industry. I am incredibly proud of what our team has achieved and excited about the opportunities that lie ahead for the combined group.”
– Liam Butterworth, Dowlais’ Chief Executive Officer
