Market Overview

Icahn Sells Federal-Mogul; Tenneco To Create Two Public Companies

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Icahn Sells Federal-Mogul; Tenneco To Create Two Public Companies

Activist investor Carl Icahn's name is front and center in a $5.4-billion merger between two automotive component companies.

What Happened

Carl Icahn and his Icahn Enterprises LP (NASDAQ: IEP) agreed to sell its indirect wholly owned subsidiary Federal-Mogul to Tenneco Inc (NYSE: TEN) for $5.4 billion, comprised of $800 million in cash and 29.5 million shares of Tenneco common stock.

Tenneco, one of the world's biggest designers of ride performance, clean air products and systems for automotive and commercial vehicle original equipment markets, plans to separate the combined business into two independent, publicly traded companies once the integration is complete.

The first company will focus on aftermarket and ride performance, which accounted for $6.4 billion in 2017 pro forma total revenue, according to Tenneco. The second company will be a powertrain technology company that accounted for $10.7 billion in 2017 pro forma total revenue.

Why It's Important

Tenneco said the strategic rationale is fourfold:

  • Each company will be strategically positioned to focus on their respective markets.
  • Each company will boast the necessary size and scale to capitalize on industry trends.
  • A split into two companies enhances capabilities to capture growth.
  • Investors gain better exposure to two unique companies with specific growth, capital deployment and product profiles.

What's Next

Icahn's investment firm has been a majority shareholder of Federal-Mogul since 2008. As part of the transaction, his firm will remain "meaningful stockholders" of Tenneco going forward. The acquisition is expected to close in the bottom half of 2018, and the separation of the business will likely occur in the bottom half of 2019.

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