June 29, 2007 -- Just three days after it pulled out of the bidding for Bell Canada Inc., Toronto buyout firm Onex Corp. has announced a deal to buy one of the world's biggest makers of automatic transmissions -- used in vehicles from motorhomes to army tanks. Onex and partner The Carlyle Group split evenly an equity investment of about US$1.5-billion to buy General Motors Corp.' s Allison Transmission for a total price of US$5.56-billion. The partners are expected to use debt to finance the rest.
The move marks Onex's first auto-related deal in years, following a stable of investments in the 1990s that yielded mixed returns. But the company cautioned the deal doesn't mean it will necessarily make a renewed push back into the industry. Onex's successful auto investments in the past include parts maker Tower Automotive Inc. The two duds were J.L. French Automotive Castings Inc. and Performance Logistics Group. Onex partnered with Magna International Inc. in an unsuccessful bid for Chrysler this year.
"This is not unfamiliar terrority for Onex," said Horst Hueniken, an analyst who tracks Onex for Westwind Partners. "But I've got to believe that they will dot their I's and cross their T's very carefully."
GM said in January it was reviewing strategic options for Allison. The carmaker has banked US$16-billion in the past two years by shedding assets it doesn't consider central to its business in a bid to improve liquidity. Onex and Carlyle are believed to have beat out bids by Blackstone Group and other private-equity players.
Onex is attracted to Allison in part because of its growth potential in developed and emerging markets, Mr. Mersky said. Commercial vehicles across the world are moving toward fully automatic transmissions, he said. "When I was a little kid, I remember school buses used to have manual transmissions. And you'd be hard pressed to find a school bus today with a manual transmission. And similar sorts of things are happening in other applications."
Allison claims an 80% market share of all medium-and heavy-duty commercial fully automatic transmissions produced globally. It has annual sales of more than US$2-billion and employs about 3,400 people. GM said it will retain ownership of an Allison plant in Baltimore, Md., that makes conventional and hybrid transmissions used in GM's pickup trucks and SUVs. Onex and Carlyle will get Allison's seven manufacturing plants in Indianapolis, Ind., and its network of 1,500 distributors and dealers present in 80 countries.
"This has got a lot of the features that you like to see in an Onex deal," said a representative of one major Onex shareholder, who asked not to be named. "If they feel they're going to negotiate transactions of these types, I think they'd prefer not to be involved in large multiple-bidder type public auctions such as BCE. They just don't feel that's their edge." Onex has announced a string of acquisitions since the start of the year, including deals for steel-mill servicer Tube City IMS, planemaker Hawker Beechcraft and Kodak's health group, Carestream Health.
Acquisitions completed to the end of April have put to work $1.6-billion, or 40%, of Onex Partners II's committed capital, the company said.
Source: Financial Post
Source: Factiva
