U.S. truck engine maker Cummins Inc. said on Tuesday it is acquiring truck parts supplier Meritor Inc. for $2.58 billion in cash in a bid to beef up its electric and hybrid vehicle parts offerings amid a boom in demand for climate-friendly transport.
The demand for electric vehicles has pushed automakers to unveil billion dollar plans to electrify gasoline models or introduce electric cars and trucks.
Cummins' offer of $36.50 per Meritor share represents a premium of 49.5 percent to its Friday close.
Meritor shares were up 43 percent before the bell.
The deal, valued at $3.7 billion on an enterprise basis, will be paid for using cash and debt, Cummins said.
The company added the merger is expected to generate savings of about $130 million in the third year after closing.
Baird analyst Luke Junk, in a report, said he sees "competitive implications" for suppliers Allison Transmission and Dana Inc., "with the entrance of CMI into the e-axle market a significant strategic development, potentially driving additional industry consolidation and/or increased investment spending."
Philip Nussel contributed to this report.