Icahn’s Federal-Mogul to Split Motorparts, Powertrain Units

Sep 03, 2014 4:05 pm ET

(Updates with closing share price in sixth paragraph.)

Sept. 3 (Bloomberg) -- Federal-Mogul Holdings Corp., the auto-parts supplier controlled by billionaire Carl Icahn, will split into two publicly traded units, enabling its motorparts arm to pursue deals in the so-called aftermarket business where drivers shop for spark plugs and other car necessities.

The separation, which will also create a standalone powertrain division, will be implemented through a tax-free distribution of Federal-Mogul’s motorparts arm to shareholders of the holding company, according to a statement today.

The split will give the auto-parts unit, whose brands include Anco wipers and Champion spark plugs, “a strong balance sheet with access to large amounts of capital enabling it to pursue synergistic acquisitions in the highly fragmented aftermarket industry,” Icahn, chairman of Southfield, Michigan- based Federal-Mogul’s board, said in the statement. The powertrain business will benefit from enhanced management focus and better allocation of resources, he said.

“Federal-Mogul ownership clearly understood that they have two very attractive businesses, the values of which were not reflected in the company’s share price,” Brian Sponheimer, a Rye, New York-based analyst at Gabelli & Co., who rates the shares buy.

The two companies, once split, should trade for a combined $29 a share, based on 2016 estimates and excluding debt and pension obligations, Sponheimer estimates.

The shares advanced 2.3 percent to $17.65 at the close in New York, giving the company a market value of about $2.6 billion. The stock has dropped 10 percent this year.

Powertrain Unit

The powertrain unit, which sells products including pistons and ignition coils, would have an enterprise value of $3.8 billion, based on the 2016 expectations, he said. The auto-parts unit’s enterprise value would be $2.7 billion, the analyst said.

Icahn, 78, who became an activist investor after gaining fame as a corporate raider in the 1980s, took control of Federal-Mogul before the company exited bankruptcy in 2007 and owned 81 percent of its shares as of June 30.

He has pushed other companies to split operations in a bid to create greater shareholder value. In April he ended a proxy fight with EBay Inc., after taking a stake in the online retailer in January in a bid to get it to spin off its PayPal payments arm.

The New York-based investor last month took an 8.5 percent stake in Hertz Global Holdings Inc., the car-rental company already pursuing a split of its own. Icahn is worth almost $24 billion, according to the Bloomberg Billionaires Index, and primarily invests his own fortune, rather than relying on money from outsiders.

Federal-Mogul expects to complete the split in the first half of next year, pending regulatory approvals.

--With assistance from Mark Clothier in Southfield, Michigan.