Delphi to spin off powertrain segment

Melissa Burden
The Detroit News

Delphi Automotive PLC plans to spin off its powertrain systems segment into a new publicly traded company as it aims to grow its businesses, better serve its customers and unlock shareholder value.

The move, announced Wednesday, is intended to accelerate Delphi’s growth in products related to autonomous vehicles, data, infotainment and connectivity — the latest step in its transformation to a company offering “safe, clean and connected” technology to the global auto industry.

The automotive supplier, based in the United Kingdom but with a significant North American presence in Troy, said the tax-free transaction is expected to be completed by March 2018, after which Delphi shareholders would own shares in both companies. The existing company will focus on advanced connectivity, autonomy and mobility.

“Today’s announcement represents an exciting opportunity for our businesses by creating two independent companies, each with a distinct product focus, a proven business model, and the flexibility to pursue accelerated investments in advanced technologies that solve our customers’ most complex challenges,” Delphi CEO Kevin Clark said in a statement.

“At a time of unprecedented industry change, the underlying strength of both our operating businesses and strategic partnerships will allow each company to focus even more sharply on its unique opportunities, continue to develop the very best advanced technologies, and help our customers navigate the road ahead.”

Investors and analysts welcomed the move. Delphi stock closed up nearly 11 percent higher Wednesday at $87.01 a share.

“Our initial view is positive since a spin could allow for a smoother multiple expansion ramp for Delphi’s remaining assets that are more directly tied to non-propulsion megatrends such as high-margin electrical architecture, software, ADAS/autonomous driving, cockpit controllers and connectivity including big data,” Citi Research analyst Itay Michaeli wrote in a note to investors Wednesday.

Clark, in a call with analysts and investors Wednesday, said it’s the right time for Delphi to create two strategically strong companies and doing so will allow each to “invest and grow even more profitably than they are today.”

Delphi said its powertrain company focuses on enhancing vehicle propulsion systems and today represents about a quarter of its business. It supplies automakers and aftermarket customers and has 20,000 employees globally, including 5,000 engineers. Revenues for the unit were about $4.5 billion last year.

Clark said the spin-off of powertrain operations is not an indication that Delphi is “running from the internal combustion engine.” He would not say whether Delphi considered selling the powertrain business instead of spinning it off.

Delphi’s $12 billion electrical/electronic architecture and electronics and safety businesses will focus on computing, advanced safety and autonomous driving systems, infotainment and user experience, vehicle connectivity and electrification, and data services. Clark said there is convergence between the two business units that include 15,000 engineers and 145,000 global employees and which last year had booked $19 billion in future business.

“We think we can position those two businesses as separate standalone businesses to accelerate investment in technology and better serve our customers,” Clark told reporters in a call.

He added there will not be any significant changes to the footprints of either company and operations in Metro Detroit will remain here. Delphi has about 1,700 employees in Michigan, most of them based in Troy.

Clark said the company has not decided on names for the two ventures going forward, though one will get a new name. He said the management team will consider alternatives over the next several months.

“I do like the Delphi name. We’ve created a lot of value for customers, we’ve created a lot of value for shareholders,” he said. “There’s value in that name.”

Delphi board member Timothy Manganello will become non-executive chairman of Delphi’s new powertrain company’s board after the companies separate. He most recently served as chairman and CEO of BorgWarner Inc. Delphi said Liam Butterworth, president of its powertrain systems, will become president and CEO of the new entity.

Delphi on Wednesday also released first quarter net income of $335 million for its continuing operations and earnings per share of $1.24, beating Wall Street estimates. Revenue totaled $4.29 billion, up 5.9 percent from the same three months a year ago.

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Staff writer Jim Lynch contributed.