Faurecia/Hella: good fit provides chance to accelerate
Rise in French group’s share price reflects deal that will help it cope with electrification
Hella began by making kerosene lamps for carriages. The 122-year-old German automotive supplier has moved with the times. Its high tech expertise has secured a €6.7bn bid from French peer Faurecia. The 12 per cent rise in Faurecia’s share price on Monday reflects a sensible deal that will help it cope with electrification.
Faurecia had to triumph over several rivals to strike the deal with Hella’s founding family for its 60 per cent controlling stake. It is not overpaying, despite investors’ fears it could when a deal was first mooted in June. As Hella’s paper was valued more highly than Faurecia’s, there could have been significant dilution from the rights issue needed to fund it.
With Hella looking for a good cultural fit, price was not the only factor. The price agreed — and the €800m equity raise to finance it — is less than expected. Hella’s shares fell 3 per cent on Monday, but hovered just above the cash offer of €60 a share, plus a €0.96 dividend. Minority shareholders who do not accept the offer have limited leverage in this case.
The price is almost a quarter higher than the three-month average. The €1.3bn premium is nearly matched by expected savings once taxed and capitalised. The return on capital employed, including savings, should exceed the 7.5 per cent weighted average cost of capital from 2023. Debt taken on to finance the deal will push net debt-to-ebitda up to three times in 2021, but is expected to fall to half that by 2023.
There will be limits on the cost-cutting as a result of long-term commitments secured by the Hueck family who will, for now, take a stake of 9 per cent in Faurecia. But there should be plenty of scope to bolster sales. The product range and market coverage of the two companies are complementary.
Most important of all for Faurecia is the deal’s promise to cut its internal combustion engine exposure from a quarter of sales to less than a tenth in 2025. Firing on all cylinders — or, rather, electric motors — should trigger a re-rating of the French company’s stock — and help drive the share price higher.