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BorgWarner to Acquire Gustav Wahler

Zacks Equity Research

BorgWarner Inc. (BWA) announced that it will be buying all the shares of Gustav Wahler GmbH u. Co. KG and its general partner. The acquisition is expected to culminate in the first quarter of 2014 depending on the standard regulatory approvals.

The acquisition will reinforce the position of BorgWarner as a producer of complete exhaust gas recirculation (:EGR) systems and provide better market opportunities in passenger and commercial vehicle applications.

Wahler is a manufacturer of EGR valves, EGR tubes and thermostats. With a total employee base of about 1,250, it counts Daimler AG (DDAIF), Volkswagen AG (VLKAY), BMW, General Motors Company (GM) and John Deere among its customers. Wahler’s units are located across Germany, Brazil, U.S., China and Slovakia. It is expected that Wahler will generate annual revenues of $350 million in 2013.

The demand for EGR valves is high in the market, as it reduces NOx emissions and boosts fuel efficiency in diesel and gasoline-direct injection (:GDI) engines. The merger of Wahler with the BorgWarner business will enable BorgWarner to expand and strengthen its operation.

Moreover, the thermostat technology of Wahler, which ensures higher fuel efficiency and lower emissions by optimizing engine temperatures, will support BorgWarner's thermal management capabilities.

BorgWarner posted a 17.7% increase in adjusted earnings to $1.40 per share in the third quarter of 2013 compared with $1.19 a year ago. Earnings per share outpaced the Zacks Consensus Estimate by 6 cents.

Revenues increased 6.6% year on year to $1.81 billion, but missed the Zacks Consensus Estimate of $1.84 billion. Revenues benefited from the favorable impact of the Euro, but were partially offset by negative impact of the Japanese Yen. Rising demand for fuel-efficient vehicles and improved emission standards also benefited the results of the company.

BorgWarner currently carries a Zacks Rank #3 (Hold).

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