BorgWarner to spin off Fuel Systems and Aftermarket segments

6 December 2022

BorgWarner announced its intention to execute a tax-free spin-off of its Fuel Systems and Aftermarket segments into a separate, publicly traded company (“NewCo”).

The spin-off reflects the current trend among automotive suppliers to separate their operations related to electric and combustion engine vehicles into independent businesses. BorgWarner acquired its Fuel Systems business in 2020 as part of Delphi Technologies.

Following completion of the intended separation, BorgWarner would consist of its current e-Propulsion & Drivetrain and Air Management segments. BorgWarner said it believes it is positioned to be a market leader in EV propulsion, with long-term growth opportunities.

BorgWarner estimates that, after giving effect to the intended transaction, it is already on track its bookings and acquisitions to date to deliver 22% of its revenue from electric vehicles by 2025, less than two years into the execution of its five-year “Charging Forward” electrification strategy.

Through the first nine months of 2022, BorgWarner’s Air Management segment generated revenue of approximately $5.5 billion and segment adjusted operating margin of 13.7%, while its e-Propulsion and Drivetrain segment generated revenue of approximately $3.9 billion and segment adjusted operating margin of 6.9%.

Following the intended separation, NewCo would consist of the BorgWarner’s current Fuel Systems and Aftermarket segments. NewCo is expected to be a global supplier of fuel systems and aftermarket products with exposure among commercial vehicle (CV), light vehicle (LV) and aftermarket end markets. NewCo is expected to benefit from its embedded relationships with global OEMs and focus on the global vehicle parc, which would be predominantly combustion-based through 2040, according to BorgWarner. NewCo would also plan to capitalize on the growth trends in gasoline direct injection (GDI) and hydrogen injection systems.

BorgWarner’s current Fuel Systems and Aftermarket segments have delivered significant operational and segment margin improvement over the last couple of years, despite the challenging industry volume environment, the company said. Through the first nine months of 2022, the Fuel Systems segment generated revenue of approximately $1.7 billion and segment adjusted operating margin of 11.3%, while the Aftermarket segment generated revenue of just under $1.0 billion and segment adjusted operating margin of 14.5%.

Immediately following completion of the intended transaction, BorgWarner shareholders would own shares of both companies. The Company expects to complete the transaction in late 2023, subject to final approval from the BorgWarner Board of Directors and satisfaction of regulatory conditions.

Source: BorgWarner