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Dana - Doubling Down With GKN

Mar. 11, 2018 4:17 AM ETDana Incorporated (DAN)GKNCF


  • Dana has reached an agreement to buy the driveline business of GKN.
  • The deal doubles the business to $14 billion, creating the largest supplier of driveline system.
  • Greater diversification and financial synergies make the deal worthwhile, yet following 2017 momentum, I am not automatically buying Dana following the deal.

Investors in Dana (NYSE:DAN) were quite pleased with the proposed acquisition of the driveline division of GKN (OTC:GKNCF) in order to create a global leader in the electrified drive systems space. With the deal, Dana will double its sales and become a more diversified play, being better equipped to deal with the transformation challenge which the industry faces as it is moving to electrical vehicles.

I like the proposed transaction for its potential synergies and improved diversification, in part offset by an extensive integration process at a time when the business is undergoing a transformation to EV. While multiples are very reasonable, I am not automatically buying Dana following this deal, and even after the recent correction from January, following a crazy momentum run in 2017.

The Deal

Dana is willing to spent $6.1 billion to acquire GKN's driveline business. The deal consists out of the offering of 133 million Dana shares with a value of $3.5 billion, a $1.6 billion cash payment as well as the assumption of a billion worth of pension liabilities. To illustrate how large the deal is, shareholders in GKN will hold a combined 47.25% equity stake in Dana following the deal.

The acquired activities from GKN have been around for 50 years and generated $7.0 billion in sales last year, including $800 million in unconsolidated sales from joint ventures. This values the activities at 0.9 times sales and 8.1 times adjusted EBITDA. The latter multiple will drop to 5.5 times after incorporating the anticipated synergies of $235 million a year. Roughly half of these synergies are driven by procurement, supplied by operating efficiencies and reduction in selling, general and administrative costs. At 1.7% of combined revenues, synergies look quite achievable.

GKN is active across the globe and offers a complete driveline system offering. GKN derives

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