Tenneco Spin-off (DRiV) Notes
- Tenneco originally announced way back on April 10, 2018 that in conjunction with its acquisition of Federal-Mogul, it would separate into two companies.
- The aftermarket and ride performance company will include Tenneco Ride Performance and Federal-Mogul Motorparts. It will focus on making aftermarket parts, shock absorbers, suspension systems, and brake parts.
- Powertrain technology company will include Tenneco Clean Air and Federal-Mogul Powertrain.
- The Federal-Mogul acquisition closed on October 1, 2018.
- The separation was originally expected to close in the second half of 2019, but it has been delayed several times due to market conditions.
- In January 2020, Tenneco re-iterated that the separation would take place in mid-2020, however, those plans changed again, this time driven by the global pandemic. As of now, the separation has been delayed indefinitely as addressed during the Q2 2020 conference call:
Yes, that makes sense. That makes sense. Okay. And then just the last one here, I’m guessing this is isn’t top of mind at the moment given the environment, but maybe you can update us on the separation. Has that been completely put on hold for now? Any discussions at all there? Or just how you’re thinking about it here?
Well, obviously with what we’re seeing in the market environment today and kind of the whole capital market structure as it’s been put on hold, we’re always looking at our portfolio from a strategic standpoint. In fact we had to — with a meaningful opportunity that we had — to pause it mid-flight as this pandemic hit. So we’ll be looking to pick that conversation back up at the right time. We’ve got to reestablish the margin profile and make sure we get the right value. But with our focus right now on accelerating that — accelerating cash generation and putting that to work on debt pay down and targeted investments, we think that’s — it is where we need to be concentrated to get that debt position down. But that’s going to be critical in any of the decision-making we make on any of the strategic options, including separating the businesses.
- Assuming the auto markets continue to stabilize and rebound, the spin-off could take place in 2021.
- However, from my perspective the opportunity is not too interesting.
- The autosupplier market is a low margin, high capex business (low quality).
- Further, the company has net debt of $5.4BN and a net debt to EBITDA multiple of 6.0x. Nonetheless, it does have has $1.4BN of cash and minimal maturities until 2023 as shown below. It also expects to generate positive free cash flow in the second half of 2020.
- Finally, the company might have secular headwinds from increasing penetration of electric vehicles (EVs). Electric vehicles have significantly fewer parts than internal combustion engines. So auto suppliers need to adapt to a new world. To be clear, I haven’t dug too deeply into the EV threat for Tenneco or DriV, but it is a high level concern.
- Here is Tenneco’s most recent slide deck.