BorgWarner Spinoff Notes

June 9, 2023 Update

From the BWA analyst day in June 2023:

May 26, 2023 Update

On May 18, 2023, BWA filed its information statement for its Turbocharger business, Phinia.

  • Good overview of upcoming transaction

April 7, 2023 Update

Some comments from the Bank Of America Automotive Summit this month:

December 12, 2022 Update

BorgWarner (BWA) announced on December 6 that it plans to spin off its Fuel Systems and Aftermarket segments. The transaction is expected to be tax-free and completed by Q4 2023.

The businesses that will be spun off generate ~$3.3BN in revenue (21% of total revenue) and an adjusted operating profit of 14.5% (vs. 13.7% for RemainCo).

The strategy behind the announcement is to spin off businesses that are focused on internal combustion engines and to keep businesses that have a future in a world dominated by electric vehicles.

Currently, BWA looks cheap trading at 8.4x FCF and 5.6x on an EV/EBITDA basis. Nonetheless, I don’t think the situation is currently actionable. I would prefer to own Garret Motion Preferred Shares (GTXAP) as it is currently yielding 8% and will be converted into common equity (common equity valuation is 7.2x FCF).

Nonetheless, I think the spin off could be an interesting “indiscriminate selling” opportunity. I expect the spin off to be sold indiscriminately given its poor secular outlook. However, the business quality should be quite high (high margins, low capital intensity, etc.).

This will be one to watch.