“We absolutely see SG&A (selling, general and administrative) synergies across the two businesses so that the combined business will be smaller than the two as they are today — but how, which combination thereof, it’s too early,” Davis said. “We haven’t even fully set out on that work yet.”
Meritor declined to make executives available to interview.
“While this transaction will provide enhanced opportunities for most employees, Cummins expects there will be some synergies and will communicate this openly and transparently with relevant employees and stakeholders when that time arises,” Meritor CEO Chris Villavarayan said in a letter to employees obtained by Crain’s.
Meritor has “not discussed or made any decisions on Troy headquarters,” according to a document it filed with the Securities and Exchange Commission after Tuesday’s announcement. The acquisition “will not affect the vast majority of employees” but there will be “some overlapping functions and positions.”
Davis said it has not been decided what will happen to Meritor executives.
The supplier has roots tracing back over a century, but its automotive headquarters in Troy was established in 1975. The company became Meritor in 1997 when Rockwell International spun off its auto business.
In 2000, it became ArvinMeritor after a merger with Arvin Industries, only to revert to the Meritor moniker after divesting its light vehicle business in 2011.
The supplier has regained strength since being crippled by the Great Recession, although the COVID-19 pandemic also dealt financial blows. The company also appears to be recovering from recent volatility in truck production, posting $113 million in adjusted earnings in the first quarter of fiscal year 2022 on sales of $984 million, an 11 percent year-over-year increase on both counts.
Meritor shares shot up 45 percent after the acquisition announcement to $35.72 as markets closed Thursday.
“I don’t want to say easily predicted, but you’re seeing really good companies coming together out of necessity for capital to invest in new technology,” said Steven Wybo, senior restructuring and management consultant at Birmingham-based Riveron. “One plus one equals three when you put good companies together.”
A product of multiple M&A and investment deals, Cummins’ growing electrification footprint is spread around North America. Davis said she recognizes the benefits of potentially establishing Cummins’ electric business base in metro Detroit.
“I am very open to considering Troy just because of the sheer amount of vehicle innovation that happens there, and the talent available,” she said.
