In another sign of the changing complexion of the heavy commercial vehicle drivetrain environment, US powertrain giant, Cummins has announced it is buying Meritor, in a deal it says will give it a broader footprint and will accelerate its development in battery-electric and fuel-cell-electric propulsion systems, as well as in traditional powertrains and componentry.
The deal worth $AUD5.1 billion(US $3.7 billion) deal was this week with . Cummins executives saying the acquisition will position it as one of the few able to provide integrated powertrain solutions across both internal-combustion and electric power applications.
Cummins chairman and CEO, Tom Linebarger, said that the deal will help it address one of the most critical technology challenges of our age.
Citing the two company’s “complementary strengths,” Linebarger said that developing economically viable zero-carbon solutions for commercial and industrial applications was a priority.
“Climate change is the existential crisis of our time, and this acquisition accelerates our ability to address it,” Linebarger said.
“Our customers need economically viable decarbonized solutions…. our communities and our planet depend on companies like Cummins to invest in and develop these solutions,” he added.
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, he thinks Cummins can now 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 Cummins boss said.
“The deal also will provide customers with more certainty they’ll have a viable product for years and years to come,” he added.
Chris Villavarayan, CEO and president of Meritor, told investors and analysts that his company has transitioned from a traditional drivetrain manufacturing company into an electric drivetrain company and that the tie up with Cummins is the next transition in our journey.
On the traditional powertrain side, Linebarger said 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, and it can grow that business on a global scale,” Linebarger said.
“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 the recent Cummins’ purchase of Jacobs Vehicle Systems, a purchase it says will help it meet upcoming stringent emissions standards, as well as in its bid to develop multiple lower-carbon alternative fuel versions of its internal combustion engines as a transition to zero emissions.
Cummins says it will be investing in growing electrification, however at the same time, both Cummins and Meritor say they have identified significant cost synergies, and say that by the end of the third year they predict savings of around $AUD179million ($US130 million) through exploiting the synergies.
The acquisition, which is subject to closing conditions, regulatory approvals, and shareholder approval, is expected to be complete by the end of this year.
How the Meritor purchase affects Cummins current joint venture with Eaton, is not yet clear.
Interestingly Eaton announced on the same day that Cummins revealed the Meritor deal, that its Vehicle Group has formed a new ePowertrain business unit.