Dowlais Group — American Axle & Manufacturing agreed offer

Dowlais Group (LSE: DWL)

Last close As at 29/01/2025

GBP0.74

5.15 (7.53%)

Market capitalisation

GBP917m

More on this equity

Research: Industrials

Dowlais Group — American Axle & Manufacturing agreed offer

In 2024, Dowlais Group exited its loss-making Hydrogen business and announced a strategic review of Powder Metallurgy. The group has now announced an agreed offer from American Axle & Manufacturing (AAM; NYSE:AXL), valuing the equity at £1.16bn or 85.2p a share (based on AAM’s price of $5.82 a share). This represents a 45% premium to the weighted average price over the last three months.

David Larkam

Written by

David Larkam

Analyst, Industrials

Automobiles and parts

Corporate action

29 January 2025

Price 68.35p
Market cap £920m

Net debt at 30 June 2024

£915.0m

Shares in issue

1,345.4m
Free float 98.2%
Code DWL
Primary exchange LSE
Secondary exchange N/A
Price Performance

Business description

Dowlais Group is an automotive components group with two core divisions: GKN Automotive is the market leader in drive systems for both ICEs and EVs, and GKN Powder Metallurgy is the leader in sintered component manufacture and number two in metal powders.

Analyst

David Larkam
+44 (0)20 3077 5700

Dowlais Group is a research client of Edison Investment Research Limited

Note: PBT and EPS are underlying and reported. Forecasts are suspended as the company is within an offer period.

Year end Revenue (£m) PBT (£m) EPS (p) DPS (p) P/E (x) Yield (%)
12/22 5,246.0 212.0 (15.30) 0.00 N/A N/A
12/23 5,489.0 264.0 13.80 4.20 5.0 6.1

Dowlais has announced an agreed offer for the group. The offer to shareholders, per Dowlais share, comprises 0.0863 new AAM shares, 42p in cash and up to a 2.8p final cash dividend to be paid prior to completion. This equates to 85.2p per Dowlais share (based on AAM’s price of $5.82 and a £/US$ exchange rate of 1.2434). There will be a ‘mix-and-match’ facility to enable shareholders to elect their preferred equity/cash combination. The offer represents a 25% premium to the closing price of 68p on the day before the announcement and a 45% premium to the weighted average price over the previous three months. The offer values Dowlais at £1.16bn. The price equates to 4.1x its adjusted EBITDA for FY23. Following the transaction, AAM shareholders will own 51% of the combined group, with Dowlais owning 49%. AAM has received irrevocables from the Dowlais board, holding c 0.3% of the group’s equity. As part of the process and agreement the current share buyback programme has been suspended. There is a potential for an increase in the offer depending on the extent of exercise of the Melrose employee share ownership trust, which owns 2.5% of Dowlais’ capital.

The rationale for the deal is that management believe the combination will create a leading global manufacturer in terms of the scale, product portfolio and technology and global diversification, with a particular strength in automotive driveline. The combination will benefit from a more diverse geography and customer base and retain a strong powertrain agnostic portfolio. Management expect it to generate $300m of cost savings (c 30% for SG&A, c 50% for Purchasing and c 20% for Operations), with a 60% run rate to be achieved within two years post-completion. The new entity is expected to have sales of $12bn, with adjusted EBITDA margins of c 14 % (including run-rate synergies) and leverage of c 2.5x adjusted EBITDA (including expected synergies) immediately after completion.

The transaction will be conducted through a scheme of arrangement requiring approval from 75% of voting shareholders. The scheme document, including the expected timetable, will be posted to shareholders in May or June 2025, allowing for the release of FY24 annual results for both AAM and Dowlais. The transaction is expected to complete during 2025, subject to the satisfaction (or, where permitted, waiver) of conditions, including regulatory approvals from antitrust authorities in the EU, US, China, Brazil and Mexico. The release also highlights the potential impact of ‘High-Level U.S. Federal Income Tax Consequences’, with further details to be provided in the scheme document.

For the purposes of the Takeover Code, Edison is deemed to be connected with Dowlais Group as a provider of paid-for research.

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