Icahn's payoff could get even bigger
Editor's note: An earlier version of this story misstated the financial terms of Federal-Mogul's sale to Tenneco Inc.
Investor Carl Icahn will pocket $800 million in cash and $1.6 billion worth of Tenneco Inc. stock in the deal announced last week to sell his privately owned parts and aftermarket supplier, Federal-Mogul, to the Chicago maker of Walker exhaust systems and Monroe shocks.
The $5.4 billion deal consisted of $800 million in cash, $3 billion in Tenneco’s assumption of debt, and $1.6 billion in voting and non-voting shares of Tenneco stock.
But the real money could come next year, when the newly merged suppliers regroup and de-merge into two new companies.
Tenneco's plan is to take the powertrain components business of Federal-Mogul, combine it with Tenneco's clean-air parts business, and create a supplier with sales of $10.7 billion, according to materials presented to investors last week.
The combined businesses will offer a portfolio of engine-to-tailpipe products and system solutions, Tenneco CEO Brian Kesseler told analysts last week. "The combination of capabilities offers our customers more options on how to efficiently improve fuel economy and meet regulations," he said.
What will remain after the separation would consist primarily of Federal-Mogul's aftermarket and brake-parts business, plus Tenneco's suspension products — a company with global sales of $6.7 billion, based on current activity levels.
The deal is the culmination of years of big-picture maneuvering at Federal-Mogul, ranked No. 45 on Automotive News' list of the 100 largest global parts suppliers to automakers.
The company owns multiple auto parts brands, including Champion spark plugs, Beru glow plugs, Anco, Fel-Pro and MOOG.
Icahn, an 82-year-old investor estimated by Forbes to have a net worth of $16.6 billion, became famous in the 1980s for a pattern of buying into companies such as Trans World Airlines and pressing them to restructure and sell off assets.
Last year, already the majority owner of Federal-Mogul, his Icahn Enterprises paid $300 million to take 100 percent control of the parts company. Icahn also is a large investor in ride-hailing company Lyft Inc. and has a controlling interest in Hertz Global Holdings Inc.
The Tenneco-Federal-Mogul deal, when finalized later this year, will give him control of 36 percent of Tenneco's stock.
Tenneco, ranked No. 31 on Automotive News' list of the world's largest suppliers, is also rich in recognized automotive brands, including Monroe, Walker, Rancho and DynoMax.
The merger and spinoff plan might also fix a simmering customer problem for Federal-Mogul. Some of the company's retail customers, such as Pep Boys and AutoZone, have grumbled that Federal-Mogul is also their competitor, since Icahn last year bought the 320-store Precision Tune auto service chain.
"Anytime there's a perceived channel conflict between an owner and its customers, it gets a little more exciting," Kesseler said. "So I do think it — getting the aftermarket business standing off on its own — is good."
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