Michigan-based auto supplier BorgWarner Inc. said Tuesday it will spin off its fuel systems and aftermarket businesses into a new publicly traded company.
The tax-free separation is expected to happen in late 2023 following regulatory approvals and final support from BorgWarner's board of directors. Shareholders would own stock in both companies. Spokeswoman Michelle Collins said in an email that information on where the new company will be located and its employment isn't yet available. The combined company has roughly 49,000 workers in 22 countries.
The split would allow BorgWarner to focus on growing its revenues from electric-vehicle propulsion, while the new company would continue to work in internal combustion engine systems as well as alternate fuels like hydrogen and after-sales products for commercial and retail customers, according to a news release.
"The intended separation of our Fuel Systems and Aftermarket segments would be an important next step to further our pivot to EVs and advance our vision of a clean, energy-efficient world, while at the same time creating a new, focused entity with strong financials to support its future," BorgWarner CEO Frédéric Lissalde said in a statement. "With Fuel Systems growing faster than the market and Aftermarket expected to benefit from favorable long-term trends, we believe NewCo would also be well positioned for success as a standalone public company."
The announcement comes as BorgWarner has been on a buying spree, acquiring battery manufacturer Akasol AG, Tianjin Santroll Electric Automobile Technology Co. Ltd.'s e-motor business, Rhombus Energy Solutions and Hubei Surpass Sun Electric's charging business. BorgWarner expects to spend another $1 billion on mergers and acquisitions by 2025 as a part of its "Charging Forward" strategy. Last week, it announced a $37.3 million acquisition of Swiss power electronics engineering firm Drivetek.
Wall Street has tended to favor more streamlined companies focused on EVs versus both electric and gas-powered vehicles. BorgWarner shares, however, were falling 1.5%, more than major market indexes, late Tuesday morning.
The divisions that would make up BorgWarner following the split have an estimated revenue of $12.3 billion for 2022. In the first nine months of the year, its air management segment had a 13.7% adjusting operating margin. That consists of its units for turbochargers, emissions and thermal systems and battery charging. Its e-propulsion and drivetrain division's margin was 6.9%. That includes electric motors, power electronics, control modules and software. The company says with the split, BorgWarner will be on track to have 22% of its revenue from electric vehicles by 2025 and that over the next years, it should be able to meet or exceed its 25% goal.
Meanwhile, "NewCo" — which will be given a proper name in the future — is expected to report $3.3 billion in revenue for 2022, about 31% of the combined company. In the first nine months of the year, the aftermarket segment posted a 14.5% adjusted operating margin, while fuel systems' was 11.3%. The company is forecasting its ability to maintain double-digit margins and positive free cash flow following the separation and says combustion-based systems will predominate through 2040.
