Cummins is buying Meritor in a deal that will give the company a broad reach in traditional powertrains and components as well as accelerating its development of battery-electric and fuel-cell-electric propulsion systems.
The $3.7 billion deal was announced Feb. 22. Cummins officials said the acquisition will position the company as one of the few able to provide integrated powertrain solutions across both internal-combustion and electric power applications.
Citing the two company’s “complementary strengths,” Tom Linebarger, Cummins chairman and CEO, said in a news release that the deal “will help us address one of the most critical technology challenges of our age: developing economically viable zero-carbon solutions for commercial and industrial applications.
“Climate change is the existential crisis of our time, and this acquisition accelerates our ability to address it," he continued. "Our customers need economically viable decarbonized solutions…. our communities and our planet depend on companies like Cummins to invest in and develop these solutions.”
Cummins believes e-axles will be a critical integration point in hybrid and electric drivetrains, and Meritor already has e-axles commercially available.
By accelerating Meritor’s investment in electrification and integrating development within Cummins' New Power business, Linebarger said, “we think we can be at the table for virtually every negotiation for who can supply what in the commercial/industrial sector. We want to be able to provide both systems and components” in the fast-moving electrification sector.
The deal also will “provide customers with more certainty they’ll have a viable product for years and years to come,” he added.
“Meritor has transitioned from a traditional drivetrain manufacturing company into an electric drivetrain company, and this is the next transition in our journey,” said Chris Villavarayan, CEO and president of Meritor, in a conference call for investors and analysts.
On the traditional powertrain side, Linebarger explained that Meritor’s core axle and brake business brings powertrain-agnostic components to Cummins, and it expects to use its global reach to raise growth rates in these businesses.
Meritor’s traditional axle and brake business fits well into Cummins’ component busines, Linebarger said, and it can grow that business on a global scale. “Cummins is in some places Meritor isn’t, in bigger ways. By bringing Meritor into places we are, we can develop their core business — and our components business becomes more powertrain-agnostic over time, providing a more sustainable source of revenue and profit.”
The acquisition announcement follows close on the heels of announcements of Cummins’ purchase of Jacobs Vehicle Systems, which will help it meet more stringent upcoming emissions standards, and of its approach to develop multiple lower-carbon alternative fuel versions of its internal combustion engines as an intermediary step on the path to zero emissions.
While Cummins will be investing in growing the electrification, at the same time, the companies have identified cost synergies, and by the end of the third year predict positive pre-tax synergies of $130 million. The transaction, which is subject to customary closing conditions, regulatory approvals, and shareholder approval, is expected to close by the end of the year.
We have reached out to Eaton and Cummins to find out if this deal will have any effect on the Eaton-Cummins joint venture in automated transmissions. Eaton on Feb. 22 announced its Vehicle Group has formed a new ePowertrain business unit.