Westport Innovations Inc. (USA) (NASDAQ:WPRT), and Fuel Systems Solutions, Inc. (NASDAQ:FSYS), today jointly announce that the companies have entered into a merger agreement to create a premier alternative fuel vehicle and engine company. The transaction will result in a combined equity value of $351 million based on the closing trading prices for the shares of both companies on August 31, 2015 and combined annual revenues ranging from $380 to $405 million projected for 2015. The combined company will benefit from complementary product solutions, and a fortified global footprint, with efficient operations and a core focus in developing next generation technology. The merger combines 17 brands in the automotive and industrial space and will allow customers and stakeholders to benefit from the consolidation of technologies, and the expansion of product portfolios, OEM relationships, and global distribution networks. The new entity will conduct business in more than 70 countries, represent a combined 100 years of experience and will trade on both the TSX and Nasdaq under the Westport Fuel Systems name, ticker symbol Nasdaq: WPRT and TSX: WPT, with a new business unit called Fuel Systems Automotive and Industrial Group. The companies’ respective boards of directors have unanimously approved this transaction.
Under the terms of the merger, Westport will acquire all of the outstanding shares of Fuel Systems common stock in a stock-for-stock transaction under which Fuel Systems shareholders will receive 2.129 Westport shares for each share of Fuel Systems common stock they own at closing, representing a 10% premium to Fuel Systems shareholders based on the closing trading prices of Westport’s and Fuel Systems’ shares on August 31, 2015 or an implied value to Fuel Systems shareholders of $7.54 per share. Following closing, existing Westport shareholders will hold approximately 64% of the combined company and Fuel Systems shareholders 36% of the combined company on a fully diluted basis. The transaction is subject to regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions. The transaction is also subject to the required approval of both Fuel Systems and Westport’s shareholders. To date, shareholders owning 34% of Fuel Systems and 15% of Westport outstanding shares have each agreed to vote their shares in favor of the merger. Subject to the satisfaction of closing conditions and receipt of required approvals, the companies anticipate closing the transaction in the 4th quarter of 2015. Westport and Fuel Systems will operate as separate companies until that time.
“The merger of these two organizations, both rich in technology innovation and with proven track records of manufacturing, production and sales, will provide greater breadth of alternative fuel systems solutions as products and development engineering to OEM partners globally,” said David Demers, CEO of Westport. “We expect that the increased scale of products and consolidation of facilities will produce both cost-efficiencies and enhanced products, ultimately creating value for all our customers and our shareholders. This transaction marks a milestone in our strategic plans, whereby Westport will realize increased sales and significant cost efficiency opportunities while continuing to focus on the development, validation and launch of its proprietary Westport™ HPDI 2.0 and enhanced spark ignition technology.”
“After conducting a lengthy strategic evaluation process, Fuel Systems’ Strategic Oversight Committee determined that this opportunity creates significant returns for the shareholders of Fuel Systems,” stated Mariano Costamagna, CEO of Fuel Systems Solutions. “Bringing together these two premier companies in alternative fuel technology combines our technology expertise and long-standing relationships with global OEMs, our strong shared focus on improving profitability, and aligns our corporate cultures, creating an ideal fit. Through this transaction, we are creating a strong platform for growth in all of our addressable markets from which to best serve our customers. Our combined businesses and brands mean increased scale and relevance both internationally and in the U.S. We are confident that we have found the right partner, and look forward to working together as we integrate the two companies.”
Traditionally, Westport has focused the majority of its technological development and commercialization efforts in the heavy-duty and high horsepower arena, while Fuel Systems has significant experience and focus in the light- and medium-duty products for automotive and industrial applications. The complementary industry expertise provides a compelling rationale for the merger, as the combined company’s product development efforts will span passenger car to heavy-duty trucks to locomotives and marine applications to stationary power. We believe there is significant potential for improved profitability even in current volatile market conditions, including untapped savings and merger synergies in excess of $30 million per year starting in 2016 and fully realized by calendar year 2018, excluding one-time costs. Included in the $30 million per year is $15 million in annualized benefits expected to be generated by Fuel Systems’ restructuring program in 2016 and beyond, Westport’s previously announced initiatives to reach adjusted EBITDA positive by mid-2016, and an additional $15 million in merger synergies through a combination of reductions in corporate management costs, manufacturing costs, and operating expenses. As the shift to alternative fuels accelerates, this merger will benefit customers, shareholders, employees and industry partners through its increased global reach, a broad technology vision, and significantly improved operational efficiencies.
STRATEGIC HIGHLIGHTS INCLUDE:
- Increased scale and opportunity to better serve customers – The combined company will have a broad global reach, with increased scale and product diversity enhancing the ability to serve some of the world’s largest and fastest growing markets through a fortified geographic footprint, greater product diversity, and a leading distribution network spanning 70 countries.
- Complementary research and development efforts – The merger would combine Westport’s development expertise in medium- and heavy-duty and high horsepower applications with Fuel Systems’ core focus and development efforts in automotive and industrial applications. Together, the combined technological expertise and future product development will span passenger car to heavy-duty trucks to locomotives and from marine applications to stationary power.
- Complementary product mix and customer sets – Westport and Fuel Systems will combine their industry experience and complementary portfolio of products and technologies, resulting in a comprehensive solutions offering across light- and heavy-duty transportation applications and industrial-focused applications. The complementary customer bases and communities will be served with combined asset base and state-of-the-art facilities strategically located across 5 continents and a shared commitment to providing exceptional products, service and related solutions.
- Broadens OEM relationships – Fuel Systems brings long standing relationships with several key global OEMs, including but not limited to General Motors Company, Ford Motor Company, Nissan Motor Company, Kia Motors Corporation, Subaru of Fuji Heavy Industries, and Mitsubishi Group. Westport has key relationships with complementary global OEMs, including but not limited to Volvo Car Group, Volkswagen, Fiat Chrysler Automobiles, Tata Motors, GAZ Group, PACCAR Inc., Daimler AG, Weichai, Cummins, Ford, Volvo AB.
- Leveraging combined track record of innovation and highly skilled employee base – The companies expect that their proven track records of product development will strengthen as a result of the combination, and benefit from capital-efficient and optimized research and development programs and a highly skilled employee base. The companies believe that as a combined company they will be well positioned to create a stronger innovation platform to invest in developing new products and new technologies, and will be positioned to fuel future growth better than either company on a standalone basis.
- High-Value IP Portfolio – Both companies have a long history of technology innovation and engineering capabilities, which have garnered the interest and demand from global vehicle and engine OEMs. The combined company will have filed over 500 patents in CNG/LNG/LPG parts and systems worldwide. This combination of a strong intellectual property position, prolific development and commercialization efforts will help expand the product pipeline for the industry.
FINANCIAL HIGHLIGHTS INCLUDE:
- Strong revenue base creates platform for growth – For the year ended December 31, 2015, both Westport and Fuel Systems are reiterating their respective revenue outlooks. Westport expects consolidated revenue to be between $110 million and $125 million for the year, while Fuel Systems expects consolidated revenue to be in the range of $270 to $280 million for the year, resulting in a combined range from $380 to $405 million projected for the year ended December 31, 2015.
- Significant savings and merger synergy opportunities – The companies expect the transaction to be accretive to the combined company’s adjusted EBITDA and earnings in 2016, excluding one-time costs, through approximately $30 million of annual pre-tax savings and merger synergies fully realized by calendar year 2018. Included in the $30 million per year is $15 million in annualized benefits expected to be generated by Fuel Systems’ restructuring program in 2016 and beyond and Westport’s initiatives to reach positive adjusted EBITDA by mid-2016 and through a combination of reductions in corporate management costs, manufacturing costs, and operating expenses as a result of the merger. Westport has a publicly stated goal of reaching break even by the middle of 2016 and the merger would only strengthen the company’s ability to meet this goal.
- Increased financial strength and flexibility – The combined company will also benefit from a strengthened balance sheet and enhanced liquidity and will be positioned for continued investment and long-term financial stability. The combined companies reported approximately $117 million in cash and short term investments as of June 30, 2015.
- The all-stock merger exchange ratio represents a 10.0% premium to Fuel Systems shareholders based on the closing trading prices of Westport’s and Fuel Systems’ shares on August 31, 2015, and a 23.9% premium to the exchange ratio of the past 30 days volume weighted average price (VWAP) as at August 31, 2015. Upon closing of the transaction, Westport shareholders are expected to own approximately 64%, and Fuel Systems shareholders are expected to own approximately 36%, of the combined company on a fully diluted basis.
- To date, shareholders owning approximately 34% of Fuel Systems and 15% of Westport outstanding shares have each agreed to vote their shares in favor of the merger.
MANAGEMENT, BOARD COMPOSITION AND HEADQUARTERS
- Upon closing, the combined company will trade on both the TSX and Nasdaq under the Westport Fuel Systems name and be headquartered in Vancouver, Canada with a new business unit called Fuel Systems Automotive and Industrial Group. This new unit will represent the combination of Fuel Systems with Westport’s Operations unit; its automotive division will be headquartered in Cherasco, Italy, and its industrial division will be headquartered in Santa Ana, CA.
- Mr. David Demers and the rest of the Westport executive team will lead the combined company, while Mr. Mariano Costamagna, who is retiring as CEO of Fuel Systems, will serve in a senior advisory position of the company’s new business unit with additional titles in the organization to be determined at a later date. Top talent across the combined organization will be evaluated and retained based on the organization’s new structure.
- Three individuals selected by Fuel Systems will be nominated for addition to the combined company’s Board of Directors including Mr. Mariano Costamagna and two directors to be confirmed. As Westport’s Board of Directors will remain the same size, three current directors of Westport are expected to be replaced by the new Fuel Systems directors.
Rothschild acted as financial advisor to Westport and JP Morgan acted as financial advisor to Fuel Systems on the transaction. Each of Rothschild and JP Morgan have delivered fairness opinions with respect to the merger to the board of directors of Westport and Fuel Systems, respectively. Willkie Farr & Gallagher LLP and Bennett Jones LLP acted as legal advisors to Westport. Skadden, Arps, Slate, Meagher & Flom and Day Pitney acted as legal advisors to Fuel Systems. (Original Source)
Shares of Westport Innovations opened today at $3.63 and are currently trading down at $3.40. WPRT has a 1-year high of $14.41 and a 1-year low of $3. The stock’s 50-day moving average is $3.95 and its 200-day moving average is $4.70.
On the ratings front, Westport has been the subject of a number of recent research reports. In a report issued on July 29, Canaccord Genuity analyst John Quealy maintained a Hold rating on WPRT, with a price target of $6, which represents a potential upside of 65.3% from where the stock is currently trading. Separately, on May 11, Jefferies Co.’s Laurence Alexander maintained a Hold rating on the stock and has a price target of $6.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, John Quealy and Laurence Alexander have a total average return of 3.0% and 13.0% respectively. Quealy has a success rate of 37.0% and is ranked #1226 out of 3742 analysts, while Alexander has a success rate of 61.4% and is ranked #79.
Overall, 4 research analysts have assigned a Hold rating and one research analyst has given a a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $6.83 which is 88.2% above where the stock opened today.
Westport Innovations Inc is a provider of high-performance, low-emission engine and fuel system technologies utilizing gaseous fuels.Its segments include On-Road Systems, Applied Technologies, and Corporate and Technology Investments.