(Bloomberg) -- Faurecia SE surged after the French auto supplier agreed to take over Hella GmbH, boosting its standing with German automakers and rendering the company less reliant on fading internal combustion engines.
The deal reached over the weekend values Hella at 6.8 billion euros ($8 billion) and will form the world's seventh-largest car-parts maker. The portion of Faurecia's business linked to combustion engines will drop to less than 20% once the deal closes and fall to 10% by mid-decade.
“We now have the two legs needed in the electric mobility business,” Faurecia Chief Executive Officer Patrick Koller said on an investor call, referring to his company's fuel cell technology and Hella's components for EVs.
Faurecia shares climbed as much as 11% -- their biggest intraday gain in nine months -- to 42.55 euros. Hella dropped as much as 3.5%, paring gains since initial reports in April said the Hueck family that controls the company was mulling a sale of its 60% stake.
The car industry is positioning for the phase-out of combustion engines as regulators crack down on emissions and force automakers to speed up their shifts to battery power. Both companies also have been building their presence in advanced driver assistance systems and less-polluting powertrains.
“In this combination and with our product portfolio, we are well equipped for the future of driving and the market trends,” Rolf Breidenbach, Hella's chief executive officer, said on a call with analysts.
Hella's three biggest customers are Volkswagen AG, Daimler AG and BMW AG, according to Bloomberg Supply Chain Analysis data. Faurecia's top clients include Stellantis NV, Ford Motor Co. and Renault SA, which are more geared to the mass market than luxury segments.
What Bloomberg Intelligence Says
Faurecia's planned purchase of automotive lighting maker Hella appears a good match and will broaden its portfolio and customer base, another move toward supplier consolidation we see continuing amid the transition to EVs. Demand for Hella's LED lights is growing, and the sensors business benefits from the increase in autonomous driving features.
--Gillian Davis, BI automotive analyst
Click here to read the research.
Faurecia has fully secured 5.5 billion euros of financing with banks and will finance the acquisition mostly through debt. The Nanterre, France-based company is purchasing the Hueck family's stake for 3.4 billion euros cash and 570 million euros of stock and making a public offer for the remainder at 60 euros a share, plus a dividend of 0.96 euro apiece.
If there are holdouts who don't accept the tender offer, Faurecia doesn't need a so-called domination agreement to realize synergies and has no issue with keeping Hella listed, Koller said.
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