September 18, 2017 1:30 AM, EDT

Wabco to Buy Out Meritor's Holdings in Joint Venture

$250 Million Deal Ends 27-Year Partnership
Meritor Wabco MCEJohn Sommers II for Transport Topics

Wabco Holdings Inc. agreed to a $250 million buyout of Meritor Inc.’s stake in the joint venture Meritor Wabco, which offers advanced safety technology and air brake systems for commercial vehicles in North America.

The deal ends the 27-year arrangement between the companies but also expands Wabco’s commitment and operations in the commercial vehicle market in North America. Each company had a 50% stake in the joint venture.

“By combining our organization under one brand and leadership structure, we can leverage and deploy, here in North America, the full breadth of Wabco’s leading technology portfolio to serve customers directly, as we do in the rest of the world,” said Jon Morrison, Wabco’s president of the Americas.

The transaction is expected to be complete Oct. 1.

Brussels-based Wabco said its buyout comes as the commercial vehicle industry advances toward fully autonomous vehicles, adding that commercial vehicle manufacturers and fleets will get more simplified and direct channels operating under the Wabco brand.

“This certainly provides Wabco with a cleaner path to market. It allows them to leverage their whole portfolio of products in a seamless presentation to customers, which was a bit of a balancing act before with the joint venture,” John Blodgett, vice president of sales at research firm MacKay & Co., told Transport Topics. “It also helps with their recent acquisition of RH Sheppard.”

The acquisition of RH Sheppard Co. Inc., a Hanover, Pa.-based supplier of vehicle steering technologies for commercial vehicles, was completed Sept. 19 for $145 million.

The transaction “importantly” allows both companies to “more easily” pursue their respective strategic plans, Stifel, Nicolaus & Co. analyst Michael Baudendistel wrote in a note to investors.

Wabco will take over the former joint venture’s engineering and supply chain operations, including the distribution center and customer service hub in Hebron, Ky., according to the company. It will continue to have exclusive access to a winter test track in Sault St. Marie, Mich., and joint access to a year-round test track in East Liberty, Ohio, to support local customers.

Meritor, after Oct. 1, will continue to provide sales, service and training to Meritor Wabco customers through its DriveForce team for up to two years, and call center services for customer support and the processing of warranty claims for about one year, according to the company.

Meritor will remain the exclusive distributor of certain Wabco aftermarket products in the United States and Canada, and the nonexclusive distributor in Mexico through an aftermarket distribution agreement.

Meritor’s CEO said proceeds from the transaction will fund investments.

“This transaction allows Meritor to allocate capital toward our strategic priorities, said Jay Craig, referring to achieving 2019 targets. “The decision to sell our interest in the [joint venture] enables us to focus on strategic priorities that involve growing our on- and off-highway, specialty, components and aftermarket businesses, among other things.”

Troy, Mich.-based Meritor also intends to use the proceeds to repurchase additional shares. In the near term, the company intends to pay down debt through the redemption of the remaining $175 million notes due 2021.

Both parties have the option to terminate the distribution arrangements at certain points during the first 3½ years, for $225 million to $265 million.

Wabco reported sales of $2.8 billion in 2016. It has 13,000 employees in 40 countries.