By Yadarisa Shabong
(Reuters) – Detroit-based American Axle and Manufacturing will buy GKN Automotive owner Dowlais in a cash-and-stock deal, valuing the London-listed firm at about 1.16 billion pounds ($1.44 billion), the companies said on Wednesday.
Dowlais shares jumped as much as 13%, but had pared gains to trade up 4.6% at 71.5 pence by 1418 GMT. RBC analysts said the offer “somewhat undervalues what is an attractive Tier 1 auto asset during the ongoing wider auto slump”.
American Axle shares fell 2.8% to $5.66.
The deal values Dowlais, maker of driveline systems and other automotive parts, at 85.2 pence per share, a premium of nearly 25% to the stock’s close on Tuesday.
The combined group aims to benefit from greater scale as the auto industry grapples with volatile demand for electric vehicles, economic uncertainties and the global expansion of Chinese EV makers.
“I think consolidation in the industry is definitely required and we want to be a first mover in consolidation in the driveline space,” Dowlais CEO Liam Butterworth told Reuters.
Butterworth said consolidating was necessary as suppliers need a broader portfolio to cater to the varied needs of customers at a time when major players China, the United States and the European Union are taking very different approaches to the EV transition.
Dowlais, which operates in more than 20 countries, is set to join a growing list of takeovers as foreign companies take advantage of UK firms’ relatively cheap valuations.
GKN, a mainstay of British engineering, has changed hands multiple times since 2018, when it succumbed to an 8 billion pound hostile bid from Melrose.
In 2023, Melrose spun off GKN’s automotive and powder metallurgy businesses by listing Dowlais – named after the village in South Wales where GKN was founded.
Its London-listed shares have lost more than 40% of their value since the spin-off.
Over the past year, Dowlais has seen revenues fall, with its ePowertrain business hit by a subdued EV market.
The two companies offer a range of automotive parts supporting internal combustion engines, hybrid and electric powertrains. AAM expects synergies of $300 million by the end of the third year after the deal closes.
Shareholders of the U.S.-based company are expected to hold 51% of the combined entity, with Dowlais shareholders owning approximately 49%.
The deal is expected to close this year subject to shareholder and regulatory approvals including from the European Union, United States, and China, where Dowlais operates a joint venture.
(Reporting by DhanushVignesh Babu, Aby Jose Koilparambil and Yadarisa Shabong in Bengaluru. Editing by Barbara Lewis and Mark Potter)
