Aptiv PLC (the “Company”), a global technology company enabling a more safe, green and connected future, today announced that its Board of Directors has unanimously approved a plan to separate its Electrical Distribution Systems business (“EDS” or the “EDS business”) from Aptiv, creating two independent companies, each optimally positioned to serve their customers and create value for their shareholders.
“We have a long track record of transforming Aptiv through operational changes and organic and inorganic portfolio shifts to best position our businesses in a dynamic environment. Today’s separation announcement represents the next step in our transformation journey. By enhancing strategic and operating focus, we are positioning both Aptiv and EDS to more effectively address the evolving needs of our customers and to further capitalize on market opportunities, which we believe will drive even greater success and value creation for both companies,” said Kevin Clark, chairman and chief executive officer. “Following completion of the transaction, Aptiv will have a portfolio of advanced software and hardware technologies and highly engineered, mission-critical products that are aligned with global mega trends fueling growth in diverse end markets. The result will be a high growth, high margin business with strong cash flow generation to support continued organic and inorganic investment in differentiated products and solutions and further penetration of adjacent markets, including aerospace and defense, telecommunications, commercial vehicle, and industrial, and return of excess capital to shareholders.”
Mr. Clark continued, “The benefits of the separation are equally compelling for EDS, which is expected to build on its 100-year legacy as a leader in designing and delivering fully optimized, next-generation electrical architecture solutions for leading OEMs in the global automotive and commercial vehicle markets. EDS’s more focused strategy will enable the business to fully capitalize on its global scale, localized regional capabilities, and broad portfolio of low voltage and high voltage vehicle architecture. Together with its industry-leading cost structure, global footprint, and disciplined capital allocation, standalone EDS will be poised to further strengthen its competitive position, while continuing to deliver strong earnings and cash flow growth that enable investment in bolt-on acquisitions and further manufacturing process automation, as well as the return of capital to shareholders.”
“We are excited about the separation transaction for both Aptiv and EDS and believe it will deliver benefits for our customers, provide opportunities for our employees, and create significant value for our shareholders.”
Benefits of the separation transaction
As separate companies, Aptiv and EDS are each expected to benefit from:
- Strategies and operating initiatives that are focused on each company’s unique product portfolio, customer challenges, market opportunities, and financial objectives;
- Resources and investments concentrated on the distinct opportunities and growth drivers of each business;
- Capital structures and capital allocation strategies that are tailored to each company’s most value creating prospects;
- Investor bases best suited for their unique value propositions, operating model, and financial characteristics; and
- A global employee base committed to developing and delivering world-class products and solutions with career opportunities and compensation programs more closely aligned with the operating and financial outcomes of their individual business.
Two leading companies with global scale and reach
Aptiv: A global industrial technology leader enabling a more safe, green and connected future.
Following the separation, Aptiv – comprising Advanced Safety & User Experience and the Engineered Components Group – will offer a full sensor-to-cloud technology stack, including industry-leading open-architected ADAS and in-cabin user experience software platforms, and a broad range of interconnects and components that optimize the distribution of signal, power, and data for next-generation applications across diverse end markets, including aerospace and defense, telecommunications, automotive and commercial vehicle, and industrial. Aptiv’s portfolio of advanced software, hardware, compute, and interconnect solutions is in the sweet spot of long-term secular trends that include advanced safety, electrification, digitalization, artificial intelligence, and automation.
The pro forma Aptiv is expected to be a high growth, high margin company with robust cash flows to support organic and inorganic investments in advanced products and technologies across diverse end markets, as well as return excess capital to shareholders. In the medium term, Aptiv is targeting mid-to-high single digit revenue growth, low-to-mid teens U.S. GAAP operating income margins, high-teens-to-low-twenties Adjusted EBITDA margins, and significant free cash flow for the company. The Company estimates that Aptiv had $12.1 billion in revenues, including intercompany sales to EDS that are currently eliminated in consolidation, $1.4 billion in U.S. GAAP operating income, and $2.3 billion in Adjusted EBITDA for 2024, excluding the EDS business to be separated.
The new EDS: A leading global provider of low voltage and high voltage electrical architectures for automotive and commercial vehicle markets.
EDS’s differentiated design and development capabilities enable the optimization of vehicle architecture systems and thereby reduce vehicle weight, mass, and costs for OEM customers. EDS’s full range of low voltage and high voltage power, signal, and data distribution solutions uniquely position the business to enable the increasing demand for feature rich, higher contented vehicles that require optimized vehicle architectures, including electric vehicles (“EV”). As EV penetration continues to outpace the growth in global vehicle production, EVs represent a key growth market for EDS.
In the medium term, Aptiv is targeting pro forma EDS to generate mid-single digit revenue growth, mid-to-high single digit GAAP operating income margins, high-single to low-double digit Adjusted EBITDA margins, and solid free cash flow. The Company estimates that EDS had $8.3 billion in revenues, $0.4 billion in U.S. GAAP operating income, and $0.8 billion in Adjusted EBITDA for 2024, excluding the Aptiv business from which it will be separated.
Separation transaction details
The separation transaction is expected to be effected through a spin-off of EDS, under which Aptiv shareholders will retain their current shares of Aptiv stock and receive a pro-rata dividend of shares of the new EDS company stock. The transaction is expected to be tax-free to Aptiv and its shareholders for both Swiss and U.S. federal income tax purposes. Aptiv is targeting completion of the separation by March 31, 2026, subject to final approval by Aptiv’s Board of Directors and other customary conditions, including the receipt of opinions from tax advisors and the filing and effectiveness of a Form 10 registration statement with the U.S. Securities and Exchange Commission. There can be no assurance that any separation transaction will ultimately occur or, if one does occur, of its terms or timing.
SOURCE: Aptiv
