According to reports, a few days ago, informed sources revealed that Eaton is considering selling its auto parts business. The business value is about 1 billion US dollars.
Eaton considers selling auto parts business
Anonymous sources said that Eaton is currently weighing down the sale of its auto parts business in order to focus on the growing power and lighting business. Eaton’s management hopes to spin off its auto parts business but excludes the truck parts business. Eaton has had several conversations with a potential buyer, but has not hired an investment bank for a sell-off procedure. It is expected that Eaton will continue to retain truck parts business in the future.
According to analysts and people familiar with the matter, this part of the business (excluding truck parts business) may be worth about 1 billion US dollars. A person familiar with the matter said that the average business value is typically five times that of Earnings Before Interest (Taxes, Depreciation and Amortization, Ebitda); Etonda’s spare parts business in 2012 was US$220 million in 2013. The target is 2.50 to 300 million U.S. dollars.
Two people familiar with the matter said that as car sales are still rising and there is growth potential in the future, Eaton expects its auto parts business will be able to attract multiple potential buyers.
John Sini, a fund manager at Douglas C. Lane & Associates in the US, predicts that the selling price of Eaton’s auto parts business may exceed $1 billion. The company currently administers more than $3 billion in assets for other companies, including Eaton’s equity.
However, Eaton spokesman Gary Klasen issued a statement saying: “The statement that Eaton sells auto business is not based on.†On June 10, local time, Eaton’s stock price in New York market closed at US$65.64, a year-on-year increase of less than 1%.
Diluted automotive business
Eaton began production of truck axles in 1911, and its focus is currently shifting from the automotive business to other businesses.
In 2012, Eaton purchased Cooper Industries Plc for US$11.8 billion, thereby expanding the scale of its electrical business. It is expected that the proportion of Eaton’s total revenue in this sector will increase to 59% after the transaction is completed. In 2012, auto parts accounted for 10% of Eaton’s operating revenue, while the truck parts business’s share was 14%.
Starting in the first quarter of 2013, Eaton consolidated the auto parts and truck parts business to facilitate the issuance of statements. In the first quarter, the operating income of Eaton’s automotive business fell 11% year-on-year to US$939 million.
JohnSini said: "If the price is moderate, I think it is wise to (dispose of auto parts business transactions). From the strategic point of view, especially Eaton is integrating Cooper Industries, based on the huge size of the electrical terminal market, such auto parts business It seems to be no longer suitable."
Eli Lustgarten, an analyst at Longbow Securities Securities, believes that electrical companies are usually worth more than companies with a wider range of businesses, so Eaton’s asset value may improve after the auto parts business is stripped.
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