BorgWarner acquisition of Delphi is hedge against electric-vehicle future
Auburn Hills-based BorgWarner Inc.’s plan to acquire powertrain rival Delphi Technologies PLC in a $3.3 billion deal, announced Tuesday, signals a potential consolidation wave in a corner of the supply base seeing demand shift to electrification from internal-combustion engines.
"Part of this is a rebranding of two old economy parts manufacturers into one 21st-century technology company," said Patrick Anderson, CEO of the East Lansing-based Anderson Economic Group. Suppliers and automakers "are going to be consolidating and slimming down in the very near future. No one knows when the next recession is coming, but I can guarantee that it results in fewer cars sold."
Increasing regulatory pressure in China, the European Union, even the United States is driving global automakers and their suppliers to expand electrified offerings within their respective lineups. Detroit’s three automakers, for example, are planning to field electric vehicles in such high-demand segments as pickup trucks and SUVs — many of which are slated to be assembled in the Motor City.
Even by the most generous estimates, Anderson added, electric vehicles are expected to make up less than 10% of global vehicle sales by 2023. He and other experts said the acquisition is aimed more directly at combining two supplier portfolios ahead of a looming sales slowdown and a more pronounced shift to electric powertrains that use fewer parts, last longer and require less labor to assemble.
"There’s definitely going to be further consolidation and particularly in the sectors where you have major technology changes taking place," said Dave Andrea, principal at Plante Moran and an automotive strategy consultant. "The other thing in terms of the softening market that you have to watch is keeping your balance sheet strong."
BorgWarner and Delphi Technologies representatives declined to comment on how the merger would affect either company's Michigan footprint. Delphi currently employs roughly 21,000 people globally, according to a BorgWarner investor presentation; Delphi has one Michigan facility, its Customer Technical center in Auburn Hills, and operates production sites outside the United States.
The combined company would be headquartered in Auburn Hills. BorgWarner operates technical centers in Auburn Hills and Marshall, as well as production facilities in Livonia and Cadillac.
Delphi is currently headquartered outside London. Representatives from Delphi and BorgWarner said the companies likely haven't finalized plans for existing Delphi facilities, or whether the acquisition would result in any job losses in Michigan or around the world.
The acquisition would give BorgWarner access to powertrain areas the company didn't possess before, said Sam Abuelsamid, analyst with Navigant Research. In theory, that would give the supplier a competitive edge as the global industry moves down dual tracks of electrification and traditional powertrains.
The deal, expected to close in the second half of this year, effectively would retire a prominent corporate name in Michigan — Delphi — that General Motors Corp. bestowed on its former parts unit more than 20 years ago. Once the largest supplier in the world, Troy-based Delphi's 2005 bankruptcy presaged the collapse four years later of its former parent into a federally induced Chapter 11 amid the global financial meltdown.
In 2018, Delphi Automotive PLC split in two separate companies in a bid to appeal to different investor bases, Glen De Vos, Delphi senior vice president and chief technology offices, explained at the time. Tech-oriented Aptiv PLC, now headquartered in Dublin, focuses on the clean, green connected technologies now on the leading edge of the global industry. And Delphi Technologies is focused on traditional powertrains with a growing portfolio of components for electric vehicles.
The BorgWarner acquisition aims to strengthen the Auburn Hills supplier's electrified powertrain business, and save money as global automakers move away combustion engine-only vehicle lineups. The company said it expects to achieve "approximately $125 million of run-rate costs synergies" by 2023.
"This exciting transaction represents the next step in BorgWarner’s balanced propulsion strategy, strengthening our position in electrified propulsion as well as our combustion, commercial vehicle and aftermarket businesses," BorgWarner CEO Frédéric Lissalde said in a statement. "Delphi Technologies will bring proven leading power electronics technologies, talent and scale that will complement our hybrid and electric vehicle propulsion offerings. As a combined company, we look forward to delivering enhanced solutions to our customers while driving increased value for our stockholders."
In a presentation to investors, BorgWarner highlighted how the companies' expertise in electrification would be amplified by the acquisition. The combined companies would also increase scale to produce the expensive hybrid and battery-electric engine technology.
BorgWarner plans to acquire Delphi for about $1.5 billion in an all-stock deal. Delphi Technologies stockholders would receive 0.4534 BorgWarner shares for each Delphi Technologies share held, according to a statement Tuesday. That would represent a premium of about 77% to Delphi Technologies’ closing price Monday.
BorgWarner stockholders would own about 84% of the combined company, while current Delphi Technologies owners would hold 16%. The deal values Delphi Technologies at about $3.3 billion including debt, according to the statement.
Both companies’ engine and transmission businesses are seen by analysts as entering a period of decline as automakers consolidate and invest in the development of electric cars, according to wire reports. They’ve been investing in products automakers will need for hybrid models that use both gasoline engines and battery power, as well as fully electric vehicles.
Forced by governments around the world to improve fuel efficiency and cut emissions, automakers are turning to smaller, lighter engines and electrifying their lineups. The industry has also been hit by sluggish economic growth and the U.S. trade war with China.
“This could be the beginning of powertrain consolidation, which is coming out of necessity,” Chris McNally, an analyst with Evercore ISI, said before the announcement. “All the suppliers are dealing with lower global volumes combined with the transition towards electric vehicles, which requires heavy investment.”
Detroit News columnist Daniel Howes and wire reports contributed.