Shares of Tenneco (NYSE: TEN), one of the world's leading designers, manufacturers of aftermarket, clean air, powertrain products and ride performance products for light vehicles, commercial trucks, and other vehicles, jumped by as much as 13% Friday after acquisition news shook up the auto component supply industry. The stock closed the day up 10.5%.
The big splash of the day was the announcement that Autokiniton Global Group had agreed to acquire Tower International (NYSE: TOWR) for $31 per share in cash, roughly a 70% premium to its Thursday closing price. The automotive component supplier space faces multiple headwinds, including a slowing North American vehicle market, as well as uncertainty about tariffs. But these conditions make mergers and acquisitions more attractive, as companies seek cost synergies and larger scale to help them counter the drags on their profits. In fact, word of Tower's pending buyout not only sent Tenneco's stock higher, it lifted Visteon (NASDAQ: VC) and American Axle & Manufacturing (NYSE: AXL) by nearly 5% Friday as well.
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While speculation pushed auto supplier stocks higher, investors looking at Tenneco would be wise to focus on what the company can control. Due to the weak market environment, management decided to push back its planned DRiV spinoff to mid-2020, and focus instead on stabilizing its business processes and systems to solidify its margins and cash flow, drive cost synergies, and strengthen its balance sheet. Executing those strategies and then successfully spinning off DRiV will be important for the company's performance in the near term -- but today's 10% pop will surely still welcomed by shareholders who have endured the stock's 64% year-to-date decline.
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