Cummins to acquire Meritor for $3.7 billion


Cummins Inc. plans to acquire an automotive parts supplier that used to be a major employer in Columbus in a $3.7 billion deal that officials say will accelerate efforts in technologies that curb emissions from commercial vehicles and industrial applications.

Cummins said Tuesday it had reached an agreement to acquire Michigan-based Meritor Inc. for $36.50 in cash per share, a 48% premium on Meritor’s closing price on Friday. The deal is expected to close this year and is being bankrolled through a combination of cash and debt.

Meritor, for its part, is no stranger to Columbus, operating under the name ArvinMeritor Inc. from 2000 to 2011. ArvinMeritor formed July 7, 2000, after the merger of Meritor Automotive Inc. and Columbus-based Arvin Industries Inc., a former Fortune 500 company that at one point employed an estimated 3,000 people in Columbus and 850 in Franklin.

ArvinMeritor changed its name to Meritor Inc. in 2011 after shedding many of its former Arvin properties in southern Indiana and elsewhere.

Meritor reported $3.8 billion in sales in fiscal year 2021, which ended Oct. 3, according to filings with the U.S. Securities and Exchange Commission. By comparison, Cummins reported $24 billion in sales during calendar year 2021.

Cummins said the acquisition is an important milestone as the company seeks to develop what it has characterized as “one of the most critical technology challenges of our age” — economically viable technologies that can reduce carbon emissions from commercial vehicles and industrial applications.

“Climate change is the existential crisis of our time,” Cummins Chairman and Chief Executive Officer Tom Linebarger told financial analysts Tuesday. “Our customers need economically viable, zero-carbon solutions for commercial vehicle and industrial applications. …The acquisition of Meritor is a unique opportunity to build out our capabilities in the transition and to provide alternative propulsion in a scalable and financially disciplined manner.”

Electric powertrains

The move is the latest in a series of acquisitions and investments that Cummins has made in technologies that the company expects will reduce greenhouse gas emissions and secure its place in a world that is shifting away from fossil fuels.

Earlier this month, Cummins announced it had agreed to acquire engine brake manufacturer Jacobs Vehicle Systems for $325 million. The company is a supplier of braking systems primarily used in heavy-duty truck engines, including the Jake Brake diesel engine brake, which was invented by Cummins founder Clessie Cummins.

Meritor supplies a broad range of systems, modules and components for the commercial vehicle, transportation and industrial sectors, including technology that can power trucks and buses with electric powertrains instead of diesel-based systems, according to the company’s most recent annual report.

Earlier this month, Meritor announced it had extended an agreement to supply PACCAR Inc., one of Cummins’ largest customers, with what it claims is the only integrated electric powertrain in production for Class 8 trucks in North America, characterizing the electric powertrain in its annual report as “game-changing technology for commercial vehicles.”

Meritor also recently secured contracts to supply German automotive giant Daimler AG’s joint ventures in China and India with axles.

During a conference call with financial analysts Tuesday, Linebarger highlighted Meritor’s electric axles, or eAxles, which he expects to be crucial components in battery and fuel-cell electric vehicles.

“Cummins believes that eAxles are a key integration point for battery electric and fuel cell electric powertrains, and we see significant strategic advantage and accelerating investment in eAxles in integrating Meritor’s significant capabilities with our new power technology,” Linebarger said.

Linebarger said the acquisition can put Cummins “at the table for pretty much every negotiation about who’s going to supply what in the commercial/industrial sector.”

“And that’s a big deal,” Linebarger said. “This is a fast-moving sector.”

Analysts react

Local analysts agreed Cummins’ acquisition of Meritor was a good move and further evidence that the company is broadening its portfolio.

Roger Lee, senior research analyst with Columbus-based Kirr, Marbach and Co., said the acquisition was great news for Columbus.

“I think it’s great because as (Cummins) looks more and more at their clean energy initiatives, they have more and more control over the entire vehicle,” Lee said. “They effectively can offer a very comprehensive solution to their solutions if they can go all the way from power to the actual axle. The more value that Cummins can offer to the world, the greater economic development we’ll see in Columbus.”

Craig Kessler, chief investment officer at Kessler Investment Group, also said the acquisition was a good decision.

“It seems to clearly point to Cummins building out and diversifying their approach to business,” Kessler said. “…It’s kind of like when Smuckers, the jelly company, bought Jif, the peanut butter company, and two great things were brought together in peanut butter and jelly. Cummins is kind of doing the same thing with engines and transmissions and brakes. They’re kind of bringing everything together and strengthening their portfolio of businesses in a very logical way.”

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