Tower makes structural metal components and assemblies. Specifically, it makes body-structure stampings, chassis structures, and welded assemblies for small and large cars, crossovers, pickups, and SUVs, according to its 10-K filing. Its largest customer, by far, is Ford at 47% of sales. Fiat-Chrysler (22%) and Nissan (12%) are its next largest customers. It has very little, if any, exposure to GM.
We were surprised it was such a huge premium (70% above yesterday's close), as TOWR shareholders will receive $31 per share in cash. That makes the total value of the deal around $900 mln. Despite the rich premium, the deal includes a 35-day go-shop period which allows TOWR to look for an even higher bidder. The transaction is expected to close in Sep/Oct 2019.
This is a very nice exit strategy for TOWR shareholders who have watched the stock price decline steadily over the past year, going from a high of $36.65 in August 2018 down to the high teens over the past month or so. While this was not a huge deal, we think there will be more consolidation in the automotive supply space. In fact, Lear (LEA) closed an acquisition of automotive software maker Xevo in April.
Automotive demand has been softening (particularly in China) and OEMs tend to seek price discounts during downcycles. One of the best ways to be able to offer lower prices is to gain scale and Autokiniton is clearly doing that here, as TOWR had $1.6 bln in revenue last year.
In sum, we think there is a lot more room for consolidation in the automotive supplier space as it's still pretty fragmented. This deal for TOWR and especially the premium being paid is clearly generating excitement among other automotive suppliers on the hopes this deal may spur further acquisitions. These may include: TEN +10%, VC +6%, AXL +4%, MGA +3%, BWA +3%, ETN +2%, GNTX +1%.