ArvinMeritor Inc. announced May 6 that its board of directors has approved a plan to spin off its Light Vehicle Systems business to ArvinMeritor shareholders, with the Commercial Vehicle Systems business remaining with ArvinMeritor. The LVS business would become Arvin Innovation Inc.
“The plan to separate our two businesses is the result of a comprehensive strategic review to enhance the company’s long-term value for our shareholders,” says Chip McClure, chairman, chief executive officer and president. “We are confident that this transaction will not only unlock shareholder value, but will also significantly strengthen the competitive positions of both companies and better align them with their respective customer bases.”
ArvinMeritor’s LVS business is a global provider of dynamic motion and control automotive systems and components, with sales of $2.2 billion in 2007 – $2.0 billion of value-added sales and $200 million of pass-through sales. Of the value-added sales, more than 60 percent were outside North America. ArvinMeritor’s LVS business group supplies components and integrated systems and modules to passenger-car and light-truck original equipment manufacturers. The business will have about 9,000 employees with 42 facilities in 16 countries. LVS has interests in eight joint ventures, three consolidated and five nonconsolidated.
ArvinMeritor’s commercial vehicle business supplies drivetrain components and systems – including axles and drivelines, braking systems, suspension systems and ride control products – for heavy- and medium-duty trucks, trailers, buses, off-highway vehicles and military vehicles, as well as to the commercial vehicle aftermarket. The CVS business will have 62 global locations, including manufacturing facilities, technical centers, warehouses and administrative offices. CVS has about 10,000 employees in 15 countries. In 2007, the CVS business recorded sales of more than $4.2 billion. CVS has interests in 11 joint ventures, five consolidated and six nonconsolidated.
“Each company will benefit from a greater strategic focus on its core business and growth opportunities, as well as from increased recognition in each of its global market segments,” McClure says. “In addition, the separate companies will offer more attractive and targeted investment opportunities, with incentives for management and employees that are more closely aligned with company performance and shareholder interests.”
The planned spinoff of the LVS business – to be named Arvin Innovation Inc. – would be implemented through a pro rata tax-free dividend to ArvinMeritor shareholders. Upon completion of the spinoff, ArvinMeritor shareholders will own 100 percent of the common stock of Arvin Innovation. Approval of the spinoff by ArvinMeritor shareholders is not required, and the company expects to complete the spinoff within the next 12 months, contingent upon satisfactory financial and automotive market conditions, as well as other customary approvals.
“Our decision to spin off the LVS business is part of the company’s ongoing corporate transformation – our 3R strategy to rationalize, refocus and regenerate – that has been under way for the last three years,” McClure says. “Separating these two businesses and successfully implementing our Performance Plus initiatives are major steps in the transformation to build two stronger, more competitive companies for the future. Our LVS business group will have the right leadership team, a solid financial structure, market-leading positions in many of its product lines, a well-diversified customer mix and the global reach to grow this new company as a market leader going forward.”
McClure will remain as ArvinMeritor’s chairman, CEO and president. James Marley, currently a board member of ArvinMeritor, will lead Arvin Innovation’s board of directors as nonexecutive chairman. Until the spinoff is completed, Marley, a retired chairman of the board of AMP Inc., will remain on the ArvinMeritor board. Phil Martens, currently ArvinMeritor’s Light Vehicle Systems senior vice president and president, will become president and CEO of Arvin Innovation.
“As a separate independent unit, Arvin Innovation will be better positioned to drive specific growth initiatives, including improving our customer focus and expanding our global presence,” Martens says. “With increased flexibility as a standalone business, Arvin Innovation will have an excellent opportunity to create next-generation systems technology solutions for our customers around the world. In addition, we look forward to the many new and enhanced opportunities the new organization will provide for our worldwide employees.”
Jim Donlon, executive vice president and chief financial officer of ArvinMeritor, will immediately begin supporting ArvinMeritor’s LVS business group in the capacity of chief financial officer as it prepares to become an independent company; upon completion of the spin, he will become executive vice president and CFO of Arvin Innovation. Jay Craig, senior vice president and controller, will replace Donlon as ArvinMeritor’s senior vice president and CFO, effective immediately.
Rakesh Sachdev, senior vice president of ArvinMeritor and president of Asia Pacific, will become executive vice president, chief administrative officer and managing director of emerging markets of the new company, upon the completion of the spin. However, until a successor is named, he will continue to be responsible for ArvinMeritor’s Asia Pacific region.
When the spinoff is completed, Carsten Reinhardt, senior vice president of ArvinMeritor and president of the company’s Commercial Vehicle Systems business, will be named chief operating officer for ArvinMeritor.
In addition, Mary Lehmann, currently the company’s treasurer and senior vice president of strategic initiatives, will expand her responsibilities to include information services, M&A activities and investor relations. Vernon Baker, currently senior vice president and general counsel with overall legal responsibility for all of ArvinMeritor’s global operations and its subsidiaries – as well as environmental, health and safety – also will assume responsibility for the global human resources organization.
ArvinMeritor will remain headquartered in Troy, Mich. Arvin Innovation will be headquartered in Detroit at the current location of the LVS Detroit Technology Center, with other corporate offices located in Europe, Asia Pacific and South America.
The spinoff is subject to customary conditions, including final approval by ArvinMeritor’s board of directors; completion of all required activities with employee representatives; receipt of applicable consents; effectiveness of a registration statement with the Securities and Exchange Commission; receipt of a tax ruling from the Internal Revenue Service; and the approval of applicable regulatory authorities.
ArvinMeritor’s common stock will continue to trade on the New York Stock Exchange under the symbol ARM. The company has applied for Arvin Innovation to be listed on the NASDAQ global stock market under the symbol ARVI. Until the spinoff is effective, ArvinMeritor’s management intends to recommend that its board continue its current dividend policy.
J.P. Morgan Securities Inc. is ArvinMeritor’s lead financial adviser for the transaction. UBS Securities also is advising ArvinMeritor on financial matters relating to the transaction. Chadbourne & Parke LLP, as well as Miller, Canfield, Paddock and Stone P.L.C., are acting as ArvinMeritor’s legal advisers.