Morningstar | TEN Updated Forecasts and Estimates from 07 May 2019
Tenneco recently closed the acquisition of Federal-Mogul from Icahn Enterprises for an enterprise value of $5.4 billion. In the second half of 2019, management intends to separate the new entity into two publicly traded companies. Including synergies, management states that the price tag represented a 5.4 times EV/adjusted EBITDA multiple. We view the multiple paid for the Federal-Mogul assets as reasonable.The total annual pro forma 2017 revenue of the new company is roughly $17 billion, with EBITDA of $1.6 billion but about $1.8 billion post-synergies. Tenneco expects to combine its emission-control business with Federal-Mogul’s engine-parts business, creating a powertrain auto-parts supplier with more than $10 billion in annual revenue. This new powertrain company will have a suite of engineering development that improves engine efficiency and reduces emissions, providing customers with product solutions to meet clean air legislation requirements in a one-stop-shop package.Tenneco’s ride performance group and the remainder of Federal-Mogul’s business contain complementary suspension components as well as brake components among other auto parts. This group, which management has called Motorparts, will also have well recognized aftermarket brands like Monroe, Walker, Moog, Anco, and Champion. Total 2017 proforma revenue was roughly $6 billion, around 57% from aftermarket and approximately 43% derived from parts supply to global automakers.In the OE market, Motorpart's wheel-end products enable packaged development of complete corner modules which include sensors, electronically controlled suspension, and all other components immediately behind a wheel. In our view, expertise in complete corner modules will be integral to capitalize on OE trends in autonomy. Motorparts has the in-house engineering expertise to develop complete, digitized corner modules, creating a compelling value proposition for OE customers. The aftermarket opportunity will be in optimizing retail shelf-space already commanded by Motorparts' products, as well as the integration of distribution and warehousing.Tenneco designs, manufactures and sells products and services for light vehicle, commercial truck, off-highway, industrial and aftermarket customers. As a parts supplier, the company produces individual component parts for vehicles as well as groups of components that are combined as modules or systems within vehicles. These parts, modules, and systems are sold to the light vehicle and commercial truck manufacturers as well as aftermarket customers, including independent warehouse distributors, distributors, engine rebuilders, retail parts stores, mass merchants, and service chains. The company operates in four segments, consisting of the following: Clean Air, Powertrain, Motorparts, and Ride Performance.
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