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Rating Action:

MOODY'S CONFIRMS RATINGS OF MERITOR AUTOMOTIVE, INC. (SENIOR AT Baa2); PLACES RATINGS OF ARVIN INDUSTRIES, INC. UNDER REVIEW FOR POSSIBLE UPGRADE

06 Apr 2000
MOODY'S CONFIRMS RATINGS OF MERITOR AUTOMOTIVE, INC. (SENIOR AT Baa2); PLACES RATINGS OF ARVIN INDUSTRIES, INC. UNDER REVIEW FOR POSSIBLE UPGRADE Moody's Investors Service confirmed the Baa2 senior debt rating of Meritor Automotive, Inc. and placed the debt ratings of Arvin Industries, Inc. (senior at Baa3) under review for possible upgrade. The rating actions follow the announcement of a merger agreement between the companies which will create a leading global supplier to the automotive industry to be known as ArvinMeritor, Inc. The confirmation of Meritor considers potential benefits arising from combining the two companies, including operational, product development and management synergies, product line extension, increased market presence and improved long-term financial strength. Moody's action also considers near-term integration risks, the relatively high leverage of the combined entity, and the cash flow impact of a modest planned cash payment to Arvin shareholders. The review of Arvin will consider the standing of Arvin's debt within the combined entity's debt structure following the merger.

Ratings confirmed are:

Meritor Automotive, Inc.: senior unsecured notes and backed senior unsecured bank credit facility rated Baa2.

Ratings placed under review for possible upgrade are:

Arvin Industries, Inc.: senior unsecured notes and backed senior unsecured bank credit facility rated Baa3; subordinated notes rated Ba2; preferred stock shelf rated (P) "ba2".

Arvin Capital I: backed preferred stock rated "ba2".

Arvin International (UK) plc: backed senior unsecured domestic currency rating of Baa3.

Arvin Overseas Finance B.V.: backed senior unsecured medium term note program rated Baa3.

Today, Meritor Automotive and Arvin Industries announced a definitive merger agreement. Under the terms of the agreement, holders of Arvin Industries stock will receive one share of the merged entity, ArvinMeritor, Inc., plus $2.00 cash for each share of Arvin stock. Holders of Meritor Automotive will receive 0.75 shares of ArvinMeritor for each share owned. In assessing the combination, Moody's has considered the financial and operating benefits which could arise. From an operations and market perspective, the combination creates a strong global competitor in the increasingly demanding automotive supply industry, where a consolidating customer base and constant price pressure virtually dictate that suppliers develop strong global capabilities. In addition, the companies expect to generate the synergies typically expected in a combination of this type: improved operating efficiency, reduced unit overhead, extended product lines and product development opportunities. From a financial perspective, the combination creates a larger and potentially more stable competitor in the automotive industry, with lower costs and greater resistance to industry cyclicality. Attainment of projected benefits would strengthen the merged company's position in the Baa2 category.

As in any business combination, the primary risks faced include the ability to integrate and manage operations efficiently as well as the need for different corporate cultures to blend compatibly. Pro forma debt protection measures for the combined entity are adequate for the Baa2 rating, but will benefit from attainment of projected margin improvement.

Meritor Automotive, Inc., based in Troy, Michigan, had 1999 revenues of $4.5 billion. Arvin Industries, Inc., based in Columbus, IN, had 1999 sales of $3.0 billion.

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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