Federal Mogul Pushes Out Motorparts Spinoff Timing As It Integrates Recent Acquisitions

When Federal Mogul Holdings (FDML) first announced that it was separating its Motorparts division from the Powertrain business, the plan was for the spin to be completed in the first half of 2015. The problem was that the company was in the midst of an acquisition boom, acquiring three different businesses – TRW’s engine components, Affinia’s chassis business and Honeywell’s brake friction unit – in the same year. Given the amount of change and the integration difficulties encountered, the company decided to push off the spinoff into the future. According to Co-CEO Rainer Jueckstock:

In quarter 1, we closed the acquisition of TRW’s engine valve business, and we successfully completed an equity offering of $250 million. Given the complexity of the Honeywell and Affinia acquisition, as well the TRW acquisition which closed in the first quarter, the board decided to defer the previously announced separation of the Motorparts division.

The company is actively working on improving its performance though and is still committed to pursuing the spinoff:

Both management and the Board of Directors are very committed to the separation of Motorparts in the near future as a right strategic move for both divisions. We will review the timing again later this year.

It’s no surprise that the board is in support of the spinoff, given that Icahn Enterprises (IEP) owns over 80% of the shares. Mr. Icahn, a vocal activist pushing for spinoffs at numerous companies, took control of the then bankrupt company shortly after his bid for Lear (LEA) failed back in 2007. He now serves as its non-executive chairman so if he wants a spinoff, it will happen.

At the time of the spin off announcement, Gabelli & Co analyst Brian Sponheimer noted the company ‘should trade for a combined $29 a share, based on 2016 estimates and excluding debt and pension obligations.’ He also thought the billion dollar units could be better swallowed up as individual pieces. Shares are down close to 20% year to date though so I guess there is even more upside? It’s worth noting GAMCO owns over 4% of the company’s shares.

Although delayed, it seems like the spin is still part of the plan. We will keep you updated if the company gives any further guidance on the timing for the spinoff.

Disclosure: Author holds no position in any stock mentioned.

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