American Axle & Manufacturing (AAM), based in Detroit, has announced its agreement to acquire UK-based Dowlais Group, the former automotive division of GKN, with the deal valued at approximately $1.44 billion. This acquisition, structured as both cash and stock, aims to create a leading global supplier of driveline and metal-forming solutions for the automotive industry.
The deal will see Dowlais shareholders receive 0.0863 shares of new AAM common stock along with 42 pence in cash per share, and up to 2.8 pence of Dowlais’ final dividend for the fiscal year ending 2024. The final agreement values Dowlais shares at 85.2 pence each, offering nearly a 25% premium above the stock’s closing price from Tuesday prior to the announcement.
David Dauch, AAM’s CEO, expressed optimism about the merger, stating, "This acquisition will create a stronger balance sheet and diversify our business model as the industry transitions to alternative propulsion technologies." A significant aspect of the merger is the expected synergy of approximately $300 million, anticipated to streamline operations and catalyze growth within the newly formed entity.
Dowlais has faced challenges recently, seeing significant revenue drops primarily due to subdued demand for electric vehicles. The CEO of Dowlais, Liam Butterworth, noted the necessity of consolidation within the industry, commenting, "I think consolidation is definitely required, and we want to be the first movers. This acquisition positions us strategically to meet the varied needs of our customers amid the shift toward electric mobility. The major players across regions are adopting different approaches to this transition, and having a broader portfolio is imperative."
AAM's acquisition aligns with broader trends within the automotive space whereby established companies are consolidifying to redefine their competitive stance against rapidly growing electric vehicle manufacturers, particularly those based out of China. The increasing competition and the need for diversification reflect the turbulent dynamics of the auto industry, where independent segments are grappling with changes driven by technology and consumer preferences.
The logistics of the deal are being facilitated by seasoned advisors. Allen & Overy and Shearman & Sterling are providing legal counsel to AAM, whereas Slaughter and May are representing Dowlais. Meanwhile, JP Morgan is serving as the exclusive financial advisor to AAM, with Barclays Bank and Rothschild & Co advising Dowlais.
Pending shareholder approval and regulatory assessments, the merger is anticipated to close by the end of 2025. Both companies are committed to enhancing their operational efficiencies and broadening their geographical reach as they pursue leadership roles within the auto parts segment.
This acquisition marks another significant movement away from the London Stock Exchange for automotive companies, many of whom are citing high interest rates and dwindling local investor engagement. Dowlais has lost more than 40% of its value since its spin-off from GKN, reflecting the broader economic challenges facing the sector. Notably, the market reaction has been mixed; following the acquisition announcement, Dowlais shares jumped by up to 13%, before settling to around 4.6% higher, illustrating investor optimism tempered by market realities.
The combined revenues from both firms are projected to approximate $12 billion on an annual basis post-acquisition, significantly bolstering AAM’s market presence. Dauch would lead the combined entity, with Dowlais directors Simon Mackenzie Smith and Fiona MacAulay joining its board once the deal concludes.
With American Axle’s prior acquisitions demonstrating its aggressive growth strategy, this deal promises to solidify its position amid the rapidly developing automotive sector, creating pathways to innovation and sustainability within the industry.
The conclusion of this acquisition will not only reshape the dynamics of both companies but also reflect larger narratives concerning the automotive industry's response to the electric vehicle revolution. Strategic partnerships and mergers could be the key to thriving as traditional automotive manufacturers navigate these uncharted waters.