American Axle (AXL) to Acquire Metaldyne Performance Group (MPG) in Net ~$1.6B Deal

November 3, 2016 6:50 AM EDT

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American Axle & Manufacturing Holdings, Inc. (NYSE: AXL) and Metaldyne Performance Group Inc. (MPG) (NYSE: MPG) announced that the companies have entered into a definitive merger agreement under which AAM will acquire MPG for approximately $1.6 billion in cash and stock, plus the assumption of $1.7 billion in net debt. The combination brings together highly complementary businesses and forms a premier, global Tier 1 supplier with broad capabilities across powertrain, drivetrain and driveline product lines, as well as diversified customer base and end-markets.

Under the terms of the agreement, each share of MPG's common stock will be converted into the right to receive $13.50 per share in cash and 0.5 share of AAM common stock. Upon closing of the transaction, AAM's shareholders will own approximately 70% of the combined company and MPG's shareholders will own approximately 30%. The transaction has been unanimously approved by the boards of directors of both companies and is anticipated to close in the first half of 2017 subject to shareholder and regulatory approval and other customary closing conditions.

Concurrent with the signing of the merger agreement, AAM entered into a voting agreement with an affiliate of American Securities LLC, the controlling stockholder of MPG, pursuant to which American Securities LLC has agreed to vote in favor of and otherwise support the transaction, subject to the terms of the voting agreement. Following the transaction, an affiliate of American Securities LLC will own approximately 23% of the combined company.

"AAM's transformational acquisition of MPG brings together two complementary Tier 1 organizations to create a company with greater scale and increased diversity across products, customers and end markets," said David C. Dauch, AAM's Chairman and Chief Executive Officer. "MPG's expertise in complex, highly-engineered powertrain components and its global footprint will be tremendous assets to AAM. We are excited about the powerful industrial logic in this combination that will allow us to create additional value for our customers and other key stakeholders. Together, we are forming a company with increased earnings potential and enhanced cash flow generation that will allow us to rapidly reduce leverage while fueling growth and delivering value to our shareholders."

George Thanopoulos, MPG's Chief Executive Officer, added, "This compelling transaction offers MPG shareholders an immediate premium and significant participation in the growth potential of the combined organization and its talented associates. MPG and AAM share a similar culture and value system, laser focused on quality, operational excellence and technology leadership, which creates a natural fit and clear path to value creation for stakeholders of both companies."

Compelling Strategic Rationale

  • Creates a global leader in powertrain, drivetrain and driveline: The combined company will have the power to deliver a wide range of quality, highly engineered components, modules and sub-systems across multiple engine, transmission and driveline applications.
  • Diversified global customer base and end markets: Accelerates AAM's profitable growth and diversification objectives, significantly reducing product, customer and end-market concentrations.
  • Complementary technologies focused on light-weighting, fuel efficiency, vehicle safety and performance solutions: Expertise in complementary product, process and systems technology strongly position the company to address the global automotive mega trends for both mechanical and alternative propulsion systems.
  • Stronger financial profile through greater size, scale and enhanced cash flow generation: On a pro forma basis, the combined entity will represent nearly $7 billion of annual sales and have the potential to generate over $1.2 billion of EBITDA and $400 million of free cash flow after full integration.
  • Powerful industrial logic with significant synergies: Estimated annual run rate of targeted cost synergies estimated to be between $100 and $120 million by 2018.

Financial Highlights The acquisition of MPG meets AAM's strategic and financial criteria for disciplined capital allocation. MPG has a strong free cash flow profile, market leading products and profitability metrics, and attractive growth characteristics.

The transaction is expected to be accretive to cash flow and EPS in the first full year following the transaction. By 2018, AAM expects the combined company to achieve annual run-rate cost synergies of between $100 and $120 million, primarily derived from optimizing the operating structure, eliminating redundant public company costs, achieving purchasing leverage advantages and operational economies of scale. The cash portion of the merger consideration will be financed through a combination of cash on hand and debt.

Upon closing, AAM expects a pro forma 2016E Net Debt / Adjusted EBITDA ratio of approximately 3.5x. AAM expects the combined company to generate significant operating profitability and cash flow that will facilitate rapid debt reduction. AAM is targeting a Net Debt / Adjusted EBITDA ratio of 2x by the end of 2019.

Governance and Leadership David C. Dauch will continue to serve as Chairman and Chief Executive Officer of AAM, which will remain headquartered in Detroit. Effective as of the closing of this transaction, AAM's board of directors will be expanded to 11 members with three designees of American Securities LLC joining AAM's current board, including George Thanopoulos.

Advisors Representing AAM as lead financial advisor is Greenhill & Co., LLC, with Shearman & Sterling LLP acting as legal advisor. J.P. Morgan also represents AAM as a financial advisor and is providing committed debt financing. Representing MPG as exclusive financial advisor is BofA Merrill Lynch and Weil, Gotshal & Manges LLP is acting as its legal advisor.

Conference Call Information AAM and MPG will conduct a joint conference call and webcast today at 8:00 a.m. ET to discuss the proposed transaction and third quarter 2016 results for both companies. Each company reported its financial results for the third quarter 2016 in separate press releases this morning. Interested participants may listen to the live conference call by logging onto AAM's investor website at investor.aam.com or MPG's investor relations website at investors.mpgdriven.com or by calling (855) 681-2072 from the United States or (213) 358-0831 from outside the United States. A replay will be available from 1:00 p.m. ET on November 3, 2016 until 11:59 p.m. ET November 10, 2016 by dialing (855) 859-2056 from the United States or (404) 537-3406 from outside the United States. When prompted, callers should enter conference reservation number 12791647. A written transcript of the call will be posted on the investor websites of both companies within 48 hours and the briefing audio will be archived on AAM's website for one year.

The investor presentation slides related to this transaction and to be referenced during the call can be found on AAM's investor website at investor.aam.com prior to the conference call. In light of today's conference call, AAM's previously scheduled earnings conference call on November 4, 2016 will no longer occur.



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