The Corporate Restructuring Report-Autoliv Inc. (ALV) & Veoneer Inc. (VNE)
On June 29th, 2018, Autoliv Inc. (NYSE:ALV) is expected to complete the spin-off of its electronic business segment into a separate public company, Veoneer Inc. (VNE). The parent will retain the passive safety business. The spin-off is anticipated to be tax-free and was announced on December 12th, 2017. The spin-off makes sense given little synergies, different capital requirements, and divergent growth rates of the two businesses. The active safety market is growing faster compared to the passive safety market and the spin-off will allow Veoneer access to capital to fund its growth strategies.
ALV (ex VNE) will be the leading supplier of passive safety systems, with the largest market share globally (~38%). The company's portfolio of passive safety products is seeing solid traction, having registered ~50% of the new order intake in 2017 for the third year in a row. The strong order flow is expected to translate to significant growth. ALV (ex VNE) is targeting total sales to reach ~$10 billion by 2020, growing at a CAGR of ~8% during 2017-2020. We see multiple catalysts for ALV, including increasing passive safety content per vehicle, expansion in adjacent verticals (commercial vehicles) and entry into other end-markets (trains, airplanes).
VNE will be the largest pure-play listed automotive safety electronics company, focused on future mobility trends around ADAS and autonomous driving. Active safety is one of the fastest-growing areas of vehicle equipment (~22% CAGR till 2025). Recent business, wins, strong order book and new program launches position the company to benefit from growth in vehicular safety content (expected to grow ~5x by 2025).
Of the two, we prefer VNE owing to more upside potential. In our view, ALV (ex VNE) is fairly valued and VNE is undervalued.
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