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Meritor Closes $250M Notes Offering

Zacks Equity Research

Meritor Inc. (MTOR) recently completed its previously announced offering of $250 million of 7.875% convertible senior notes due 2026. The offering was made to qualified institutional buyers in a private placement. The offering may not be made in the U.S. as the 7.875% notes are not registered under the Securities Act of 1933, as amended or applicable state securities laws.

Initially, Meritor offered convertible senior notes worth $225 million due 2026. The company offered the initial buyers an option to purchase an additional $25 million 7.875% notes in a 30-day period. Following the exercise of the option, the total offer value rose to $250 million.

Meritor utilized the proceeds of around $218.1 million from the offering to purchase a portion of its outstanding 4.625% convertible senior notes due 2026. The company has purchased roughly $245 million of $300 million 4.625% notes for an aggregate purchase price of approximately $235.7 million (including accrued interest). The company may redeem the remaining portion of 4.625% notes on or after March 1, 2016.

Meritor reported adjusted earnings per share of 32 cents in the fourth quarter of 2012, down 28.9% from 45 cents in the year-ago quarter. However, the results outpaced the Zacks Consensus Estimate by 14 cents. The year-over-year fall in earnings was attributable to lower earnings from unconsolidated affiliates resulting from a decline in sales volume in the respective markets.

Revenues decreased 19% to $986 million in the quarter, missing the Zacks Consensus Estimate of $1 billion. The decline was due to lower sales volumes in global markets and adverse impacts of currency translation.

Headquartered in Troy, Michigan; Meritor is a global automotive parts manufacturer and supplier to various customers in North America, Europe and other parts of the world. The company operates manufacturing facilities in North America, South America, Europe and Asia-Pacific. Some of its big customers include AB Volvo (VOLVY), Navistar International Corporation (NAV) and Daimler AG (DDAIF).

Currently, Meritor retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We have a long-term Neutral recommendation on the stock.

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