BorgWarner to spin off fuel systems and aftermarket segments

As it pivots to electric vehicles (EVs), BorgWarner, an American automotive supplier based in Auburn Hills, Michigan, U.S.A., announced its plan to spin off into a separate, publicly traded company (NewCo) its fuel systems and aftermarket segments which have approximately annual revenues of USD3.3 billion.

The transaction is intended to qualify as a tax-free spin-off for  U.S. federal income tax purposes.

Following the spin-off, the new company is expected to be a product leader in fuel systems and aftermarket distribution with a balanced and synergistic exposure among Commercial Vehicle (CV),  Light Vehicle (LV) and Aftermarket end markets. It is expected to benefit from its embedded relationships with global OEMs and focus on the  global vehicle parc, which would be predominantly combustion-based through 2040. It also plans to capitalize on the growth trends in gasoline direct injection (GDI) and hydrogen injection systems. 

“The BorgWarner Board believes a strategic spin-off of our Fuel Systems and Aftermarket  segments would be the best path forward to further the transformation of our company. The  intended separation supports optimizing our combustion portfolio and advancing our  electrification journey while NewCo would be able to pursue growth opportunities in alternative  fuels, such as hydrogen, and in Aftermarket,” said Alexis P. Michas, non-executive chairman of  the BorgWarner Board of Directors. “Ultimately, we expect the intended separation to maximize  shareholder value by having two focused and strong companies, each pursuing their respective  strategies.” 

“We are incredibly proud of the progress we are making in executing our ‘Charging Forward’ strategy,” said Frédéric B. Lissalde, president and chief executive officer, BorgWarner. “At the  same time, our electric vehicle (EV) business is accelerating. We believe we are already on track  to exceed our 2025 organic EV sales target, and over the last two years, we have announced or  completed four acquisitions. 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. 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.” 

BorgWarner: a leader in electrification  

Following completion of the intended separation, BorgWarner would consist of the company’s  current e-Propulsion & Drivetrain and Air Management segments. The company believes it is  positioned to be a market leader in EV propulsion, with long-term, secular growth opportunities  and an enhanced focus on the development and commercialization of EV technologies, while  continuing to deliver top-quartile margins and strong cash generation. 

The company expects that the intended separation would better allow BorgWarner to focus  resources on attractive organic and inorganic opportunities that position it to deliver and even  exceed the goals underlying “Charging Forward.” 

The company estimates that more than 22% of its revenues will come from electric vehicles by 2025, less than two years into  the execution of its five-year strategy. With continued execution of its electrification growth  initiatives, BorgWarner believes that it would ultimately achieve or exceed its stated target of  25% of revenue from electric vehicles by 2025. 

Through the first nine months of 2022, BorgWarner’s Air Management segment generated  revenue of approximately USD5.5 billion and segment adjusted operating margin of 13.7%, while its  e-Propulsion and Drivetrain segment generated revenue of approximately USD3.9 billion and  segment adjusted operating margin of 6.9%. The midpoint of the company’s guidance provided  on October 27 included approximately USD12.3 billion in revenue, after considering inter-segment  eliminations, from BorgWarner’s e-Propulsion & Drivetrain and Air Management segments for the  full fiscal year 2022.