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Delphi buys TRW unit
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November 23, 1999: 12:18 p.m. ET
$871M sale of Lucas Diesel will help Delphi expand, TRW to cut debt
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Delphi Automotive Systems said Tuesday it is buying Lucas Diesel Systems from TRW Inc. in a deal worth $871 million.
The sale gives Delphi - which was spun off from General Motors Corp. in February and is now the world's largest maker of auto parts - a greater presence in Europe, greater access to innovative diesel technology and, perhaps most importantly, a stronger base of non-GM customers. The need to diversify its customer base was the major driver in the spinoff from GM.
From TRW's angle, the sale is part of its strategy to reduce its acquisition-related debt by $2.5 billion by the end of next year. With the Lucas sale the auto-parts company reaches the $1.1 billion level in debt reduction.
TRW (TRW) also said Tuesday it has reached agreements-in-principle to sell two other subsidiaries, TRW Nelson Stud Welding and the LucasVarity Wiring companies, for $200 million, but did not give details of the buyers nor when details would be announced. But, Delphi officials said it was not involved in those discussions.
TRW said that the other deals, coupled with current market conditions, caused it to withdraw its previously announced intention to sell its engine-components business.
In May, Cleveland-based TRW announced plans to sell the four units to shed the debt it took on to buy LucasVarity for $7 billion. That deal, the largest in TRW history, left the company with about $9 billion in debt before Tuesday's announced sale. The deal is expected to close around the end of the year, Delphi officials said Tuesday.
A new kind of diesel engine
Paris-based Lucas, which has about 8,600 employees and sales last year of about $1.1 billion, makes the diesel fuel systems as opposed to the entire engines.
Officials with Delphi (DPH) said that it will make it the second-leading producer of diesel systems in the world after privately held German manufacturer Robert Bosch GmbH.
Lucas Diesel is a leader in a new technology, known as "common rail," which uses a high-pressure fuel pump to cut down on the noise and exhaust smoke traditionally associated with diesel engines while improving acceleration.
Higher fuel prices and fuel economy regulations in Europe have resulted in about 25 percent of cars and light trucks there being diesel powered, and Delphi officials say they expect that share to rise to 35 percent by 2010.
While diesel engines have been much slower to catch on in cars in the United States, the need to improve fuel efficiency in their popular sports utility vehicles and light trucks in order to meet tougher regulations here gives diesels a chance to improve market penetration here, said Donald Runkle, president of Delphi's energy and engine management systems division.
"Today's modern diesels are clean, they are quiet and they are very fuel efficient," said Runkle. "With increased environmental pressures, we think the diesels are going to be the propulsion system of choice going forward."
A further move away from GM
The deal should add to earnings per share in the coming year and will be paid out of cash flow, said Alan Dawes, Delphi's chief financial officer.
Troy, Mich.-based Delphi had sales of $28.5 billion in 1998 and a loss of $93 million, when it was hit with a strike by the United Auto Workers union. For the first nine months of this year, it had revenue of $21.9 billion and net income of $814 million, or $1.48 a share.
About $6.9 billion of its sales this year will be to non-GM customers, Dawes said, so Lucas Diesel maintains its current sales pace, it alone will increase non-GM sales by 16 percent next year.
Delphi shares fell 5/16 to 15-1/2 in late morning trading Tuesday. TRW was off 1/4 to 51-3/4.
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