Canadian auto parts maker bets big on the shift to aluminum

A Linamar facility in Guelph, Ontario. The auto parts manufacturer has made a play to acquire Montupet, a major producer of aluminum.

By Jeff Sanford

Toronto, Ontario — October 16, 2015 — Canadian auto parts giant Linamar Corporation announced this week it has tendered an offer for 100 percent of the shares of French aluminum casting firm, Montupet S.A. The deal was billed by Linamar executives as the “latest move to solidify the company as a global powerhouse in aluminum casting and machining.”

To put news of the deal another way, the historic once-in-history shift to greater use of aluminum in autobodies continues. Now that the Ford-150 is making use of aluminum, executives in the wider auto industry are reading the trends and moving accordingly—this deal is recognition that the move toward aluminum is real and happening now. That Linamar is offering so much for the French company is proof of this.

The deal announced Thursday will see the parts maker offer €71.53 per share in cash (around $105 CAD per share) for all the outstanding shares in Montupet. This represents a hefty premium of 15.5 percent compared to the closing price of Montupet shares on October 14, the day before the offer was announced. This is a premium of 26.7 percent over the 30-day average price of Montupet shares. With such a high premium attached it seems shareholders will tender their shares and support the deal. If all goes according to plan, Montupet will sell for €771 million, or $1.16 billion Canadian.
Is Linamar paying too much to get into aluminum? Not according to analysts. The prevailing wisdom among analysts who follow Linamar was that while the price is expensive it makes sense in the context of the one-time shift to aluminum in the auto industry.

Montupet is not a well-known brand in North America, but it is a global leader in the design and manufacture of complex aluminum castings for the global automotive industry. It has sales and production facilities across several European countries, North America and Asia. According to the Linamar press release announcing the deal, “The business combination represents a significant milestone in Linamar’s strategy to create global leadership in the integrated casting and machining of aluminum components for the automotive sector.” Montupet has expertise in “low pressure die casting and gravity die casting, both of which are standard processes for high-integrity precision castings.” The company is also a technological leader in cylinder head manufacturing and offers key cast aluminum products such as turbo charger components and steering knuckles.

Montupet’s senior managers and anchor shareholders own approximately 36.6 percent of the company’s outstanding shares. They have already announced their intention to tender their shares and have agreed to remain with the company for at least one year after the acquisition closes.

In July, Linamar initiated a new “light metal strategy” when it signed agreements with GF Automotive to supply provide “Light Metal casting and machining solutions to global customers.” Linamar and GF Automotive have agreed to build a new jointly owned light metal foundry in the southeastern United States. The new jointly-owned entity will provide light metal high-pressure die castings for powertrain, driveline and structural components to the NAFTA market. The foundry is scheduled to begin production mid-2017.

Linamar is having a great year. The most recent quarterly numbers saw record market share gains and an increase in sales of 23.8 percent over the second quarter of 2014. Net earnings and earnings per share were up 33 percent compared to Q2 2014, reaching record levels of $120.1 million and $1.84 respectively.

Linamar also announced last week that it expects no impact to its business as a result of the VW emissions scandal.

“VW is a strategic customer of Linamar but VW would not currently be considered a material customer for the company as sales to VW represents less than 5 percent of Linamar’s consolidated sales for the first six months of 2015,” according to a press release. That is, the VW emission allegations are not expected to have a material impact to Linamar’s net earnings.

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