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LKQ Corp Divests Major Portion of Bulgaria-Based Business

Zacks Equity Research

LKQ Corporation LKQ has declared that it merged its subsidiary, Auto Kelly Bulgaria EOOD, with Elit Kar OOD, thereby creating a leading distributor of automotive spare parts based in Bulgaria.

LKQ Corp will now own a 20 percent equity stake in the combined entity. The combined business will also acquire parts of LKQ Corp’s aftermarket supply chain, thereby becoming an equity holder as well as a supplier.

The combined business will carry on operating under the brand names, Elit Car Group and Auto Kelly.

The terms of the transaction have not been disclosed. The deal is part of LKQ Corp's efforts to streamline its portfolio and divest non-core businesses, which in turn will help its margins. The Auto Kelly Bulgaria business is anticipated to perform strongly under the leadership of Elit Kar.

A couple of months back, LKQ Corp identified several enterprises, which it intends to sell over the next year. The assets are kept on the balance sheet as net assets retained for sale. The company is trying to simplify the operating model and enhance margins, with the disposal of these non-core assets.

Recently, it also closed the divestiture of AeroVision International as it contributed just 1% to revenues of LKQ Corp’s North America segment.LKQ Corp’s prudent acquisition and divestiture strategies are likely to boost prospects. Acquisitions have revved up the growth engine of LKQ Corp. The $1.8-billion buyout of Germany-based spare-parts distributor, Stahlgruber, in 2018 is significantly aiding top-line growth of LKQ Corp.

LKQ Corp’s operational efficiency and capital discipline are helping it enhance operating cash flow. In this regard, the company revised its cash flow guidance upward while trimmed capex forecast for 2019. LKQ Corp now expects to generate $800-$875 million in cash flows, up from the prior guidance of $775-$850 million.

Other prominent stocks, apart from LKQ Corp, which provide alternative and specialty parts to repair and accessorize automobiles, include Douglas Dynamics, Inc PLOW, Genuine Parts Company GPC and SPX Corporation SPXC.

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