Delphi considers new name and will spin off $4.5-billion powertrain division
Delphi, the former parts arm of General Motors, has been shedding conventional automotive businesses ever since it was spun off as a separate company by GM in 1999
Delphi Automotive is splitting into two and must find a new name either for the new standalone powertrain division or for the remaining company as it continues to transform itself into a developer of electrical infrastructure for autonomous vehicles.
The auto supplier said Wednesday it plans to spin off its $4.5-billion powertrain division into a separate publicly traded company by this time next year.
That new company, which will have about 20,000 employees globally and 5,000 engineers, will “absolutely” maintain its presence in metro Detroit and may even get to keep the Delphi name, Delphi CEO Kevin Clark said.
The decision allows both Delphi’s powertrain division and the remaining company to carve out separate, distinct identities, Clark said.
Delphi’s powertrain division makes components and systems for gasoline, diesel and electric engines while its remaining business specializes in electrical systems and the electrical infrastructure of cars.
“I do like the Delphi name. We have created a lot of value for customers, a lot of value for shareholders so there is value in that name,” Clark said. “We just think as a management team that given what we are going through, someone is going to have to have a new name … I quite frankly don’t have a preference one way or the other.”
Investors, who will get stock in both companies in the tax-free deal, immediately signaled that they love the idea. Delphi’s shares surged $8.56, or 10.9%, to close at $87.01 on Wednesday.
Barclays’s analyst Brian Johnson said the spin-off “improves Delphi’s position in a world of automotive big data” and the company is among the best-positioned to benefit in the coming years as automakers spend more money on systems that manage the data needed by autonomous vehicles to navigate.
Delphi, the former parts arm of General Motors, has been shedding conventional automotive businesses ever since it was spun off as a separate company by GM in 1999. Today, Delphi is incorporated as British company in Gillingham, England, but its U.S. operations are based in Troy.
The auto supplier also has emerged as a leader in autonomous vehicle technology. It has acquired or made strategic investments in 11 companies that specialize in the electrical architecture and software required by autonomous vehicles and connected technology in cars since 2012.
Those companies will remain with Delphi’s electrical and electronics architecture divisions. Those divisions collectively have annual revenue of more than $12 billion with 145,000 employees globally.
“(Automakers) are requiring a significant ramp up in computing power .. .and more and faster signals and data distribution in the car,” Clark said. “And we are the only supplier in the industry that has both the electrical architecture that controls computing power, controls signal distribution and the software capability to develop the systems for autonomous driving.”
Clark emphasized that the powertrain company has been growing and is expected to continue to grow through 2025 even though it is focused on a more traditional part of the industry.
“The internal combustion engine is going to be around for a long, long time,” and will likely still be the engine in 95% of vehicles sales through 2025, Clark said. “There is all sorts of opportunity within the powertrain segment to develop enhanced technology that improves the internal combustion engine.”
Clark said both the new powertrain company as well as the remaining company plan to maintain their presence in Troy even though the leadership of the division is based in Luxembourg.
“We would expect, quite frankly, that there would not be any significant changes” to the locations of both companies, he said.
Liam Butterworth, currently senior vice president and president of Powertrain Systems, will become president and CEO of the new company when the transaction is completed later next year.
Timothy Manganello, who serves on the Delphi board of directors, will become non-executive chairman of the new Powertrain company. Previously, Manganello served as chairman and CEO of Auburn Hills-based BorgWarner.
Barclay’s Johnson, in his note to investors, said the powertrain division’s growth has lagged behind Delphi’s other divisions in recent years. However, Johnson said the new, standalone company could grow in the future through acquisitions.
Also Wednesday, Delphi Automotive reported net income of $335 million for the first three months of the year.
Delphi said it had profit of $1.24 per share. Earnings, adjusted for one-time gains and costs, were $1.59 per share.
The results beat Wall Street expectations. The average estimate of 11 analysts surveyed by Zacks Investment Research was for earnings of $1.46 per share.
The vehicle parts maker posted revenue of $4.29 billion in the period, also exceeding forecasts. Seven analysts surveyed by Zacks expected $4.13 billion.
Source: Detroit Free Press