Autoliv preps split into passive safety, electronics companies
STOCKHOLM -- Sweden's Autoliv plans to split into two publicly traded companies, with one focused on high-tech safety gear to capture the rapid growth toward self-driving vehicles.
Autoliv is the biggest player by far in the market for safety gear such as airbags and seat belts which generate the bulk of its earnings. It has yet to reach a dominant position in new markets such as radar, vision systems and driver assistance software that are key for the development of self-driving cars.
The company believes both its core businesses -- passive safety systems and electronics -- are undervalued and hopes the split will make them more appealing to investors.
"Over the last decade our electronics business has grown and matured next to our world-leading passive safety business and today we have two distinct, successful businesses," CEO Jan Carlson said in a statement ahead of Autoliv's capital markets day in Frankfurt on Thursday.
"We believe it's time to let them both individually maximize their potential."
Investors have been putting pressure on automakers and their suppliers to more clearly identify the growth parts of their businesses, areas such as automated driving, electrification and digital technology.
Delphi Automotive, another major auto supplier, recently announced plans to separate into two entities -- one dedicated to internal combustion technology and the other focused on electrification and automation.
"A reason to do this is to clarify the potential in these businesses," Autoliv CEO Jan Carlson told Reuters.
"To show the strength of possibly the world's strongest product portfolio in electronics as well as the strong development we have in passive safety."
Autoliv said there was no guarantee the review would result in any transaction, such as a separation or listing of the businesses, and estimated any separation process was likely to take around one year.
Autoliv added that while the split is the company's goal, it will not rule out alternatives.
Analysts at Jefferies noted in a research note the consolidation opportunities in the electronics business.
Autoliv's Stockholm-listed shares jumped as much as 12 percent and were up 10.5 percent at 1323 GMT.
"The split will clearly help to bring the true value of Autoliv’s excellent market positions and strong product offering to the surface," said John Hernander of Nordea, the company's fifth-largest shareholder.
Autoliv has seen major market share gains on order intake in its traditional, passive safety business over the past two years following the collapse of Japanese rival Takata.
But the auto industry's long lead times have meant that Autoliv is only now starting to reap the full benefits of those new contracts, while strong orders in its electronics business will only gradually filter onto the balance sheet in coming years.
Extra spending needed to deliver the influx of orders in recent years and technology investments needed have weighed on the stock, while worries have mounted over slower growth in the global car market.
Autoliv's U.S.-listed shares are flat so far this year, lagging a 16 percent rise in the Dow Jones U.S. Automobiles & Parts Index.
Global automakers and electronics firms such as Intel Corp. and Qualcomm Inc. are racing to develop the emerging technology of autonomous vehicles.
In electronics, Autoliv's recent tie-ups include a joint venture with Geely-owned Volvo Cars, and partnerships with chipmaker Nvidia, as well as Velodyne over LiDar technology.
The company said it expected sales to top $12 billion in 2019 while analysts are on average forecasting sales of $11.9 billion in 2019, Thomson Reuters data shows.
It also gave sales and profit forecasts for the separate entities for 2020, giving further upside to consensus forecasts, according to Jefferies.
The company said it expected total sales to top $12 billion in 2019. Autoliv ranks No. 23 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $10.1 billion in 2016.
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