American Axle & Manufacturing Holdings Inc., a prominent Car Parts Maker specializing in drivetrain components, has announced a definitive agreement to merge with UK-based Dowlais Group Plc, in a significant transatlantic transaction set to reshape the automotive supply landscape. This merger, structured as a cash-and-share deal, is valued at approximately £1.16 billion ($1.44 billion) and signifies a strategic move to enhance competitiveness in a rapidly evolving industry.
The terms of the agreement, unveiled on Wednesday, indicate a 25% premium on Dowlais’s closing share price as of January 28. Upon completion, American Axle shareholders are poised to hold a 51% majority stake in the newly combined entity, while Dowlais shareholders will retain the remaining 49%. Both companies anticipate substantial cost synergies from this integration, estimating savings of around $300 million annually.
This transaction, which confirms earlier reports, is projected to be the largest US-to-UK deal announced this year, underscoring renewed transatlantic economic activity. The announcement has been met with positive market reaction, as Dowlais shares experienced a surge of up to 13% in London trading on Wednesday, briefly pushing the company’s valuation close to £1 billion. However, it’s worth noting that Dowlais’ stock has seen a decline of approximately 19% over the past year, highlighting the pressures faced by automotive suppliers in the current market.
The merger announcement arrives at a potentially pivotal time for global dealmaking. Some analysts suggest that events like the US presidential election could spur increased “animal spirits” in the deal market. Furthermore, political signals from the UK, with Prime Minister Keir Starmer’s pledge to foster UK economic growth and seek improved trade relations with the US, may also be contributing to a more favorable environment for such transatlantic collaborations.
Detroit-based American Axle, deeply rooted in the US automotive industry, has been a long-standing supplier of drivetrain components to major automakers. However, like many traditional car parts makers, the company is facing increasing headwinds from the automotive industry’s accelerating transition towards electric vehicles (EVs). The shift by industry giants like Ford and General Motors towards electrification is fundamentally altering the demand for traditional drivetrain systems.
Dowlais Group’s formation in 2023 is itself a result of industry restructuring. It emerged from Melrose Industries Plc, a buyout firm that spun off and rebranded its drivetrain technology division, formerly known as GKN Automotive. Melrose had acquired the broader British aerospace and automotive conglomerate GKN in 2018 after a contested takeover, before strategically separating its business units.
The automotive industry’s pivot from internal combustion engines to electric and hybrid powertrains is intensifying pressure on even the largest automotive suppliers. Drivetrain specialists like American Axle, Dowlais, and Dana Inc. have been exploring consolidation as a strategic response to gain economies of scale and reduce operational costs in this evolving landscape.
Notably, Melrose had previously considered a merger between its GKN Automotive unit and American Axle back in 2022, indicating a long-term strategic rationale for such a combination. American Axle has also reportedly engaged in discussions with other industry players, including BorgWarner Inc. and Dana, regarding potential mergers, acquisitions, or asset sales, reflecting a broader trend of strategic realignment within the car parts maker sector.
Dana, another Ohio-based automotive supplier, was reported in October to be exploring the sale of its off-highway business, as the company navigates challenges related to slower demand in key market segments. This further illustrates the ongoing adjustments and strategic shifts within the automotive supply chain.
American Axle’s stock has experienced a decline of over 30% in the past year, reflecting market concerns and industry pressures. On Wednesday morning in New York, the stock was down 5%, bringing the company’s market capitalization to $649 million.
For the transaction, Dowlais received financial counsel from Barclays Plc and Rothschild & Co., while JPMorgan Chase & Co. served as the financial advisor to American Axle. This merger represents a significant strategic maneuver for two established car parts makers as they navigate the complex transition within the global automotive industry and aim to solidify their position in the future of mobility.
