Japan’s Calsonic Kansei, owned by U.S. private equity firm KKR, has is set to purchase Fiat Chrysler’s Magneti Marelli for 6.2 billion euros ($7.1 billion) to establish the seventh-largest independent car parts supplier.
The first big deal by FCA’s newly-appointed CEO Mike Manley, who took over in July following the sudden death of long-time CEO Sergio Marchionne, creates a company with earnings of 15.2 billion euros ($17.5 billion), the companies stated.
The recently formed Magneti Marelli CK Holdings is likely to slash expenses through synergies and expand its customer base as parts makers try to keep up with a move by automakers into autonomous driving, connected cars and electric vehicles.
“This combination with Calsonic Kansei comes as an ideal opportunity to speed up Magneti Marelli’s future growth,” Manley stated on Monday of the FCA unit, which focuses in lighting, powertrain and high-tech electronics.
FCA shares increased 3.6 percent at 1358 GMT as investors welcomed the heavy price tag, which will increase FCA’s net cash position, raise expectations of a share buyback and make the way for dividend payments the automaker promised under its new five-year strategy plan revealed in June.
It will also assist FCA pay for much required investments in hybrid and electric vehicles in order to remain compliant with tougher future emissions regulations in the EU and elsewhere.
“Getting this transaction completed at the price agreed is a significant early milestone and accomplishment,” George Galliers, an analyst at Evercore ISI, stated of Manley and his team’s ability to match Marchionne’s deal-making reputation.
Calsonic has been discussing with FCA for months and made 5.8 billion euro bid in the start, sources noted.
FCA does not break out revenues for Magneti Marelli, which sits within its parts unit alongside robotics specialist Comau and castings firm Teksid. The unit has hired around 43,000 people and operates in 19 countries.
Calsonic is paying about 17 times next year’s estimated earnings for Magneti Marelli, as per Galliers’ calculations. That’s more than double what listed competitors including Valeo or Continental are worth, according to Refinitiv data.