Automotive components supplier Dowlais Group (LON: DWL) is the best performer in the FTSE 250 index following its agreed merger with American Axle & Manufacturing. The cash and shares bid values Dowlais at £1.16bn. The share price is 10.3% higher at 75.375p.
Dowlais is effectively the former GKN automotive businesses and was spun out of aerospace company Melrose Industries (LON: MRO), the former AIM company now in the FTSE 100 index, in April 2023. The share price is trading at just over 50% of its peak in May 2023.
For each Dowlais share investors will receive 42p/share in cash and 0.0863 of an American Axle & Manufacturing. They will also receive a 2024 final dividend of up to 2.8p/share. That values each Dowlais share at 85.2p each at an American Axle & Manufacturing share price of $5.82.
The combination will create a leading drivetrain and metal forming business. It will have a wider range of customers. There could be annual cost savings of $300m by the end of the third year after the combination. The exceptional charges to achieve this could be equivalent to one year of the full savings.
Purchasing should yield 50% of the savings due to economies of scale and the internal supply of products. Cutting out listing costs and eliminating duplications should save 30% of the savings and the rest will come from improved efficiency.