Icahn's $5.4 billion exit strategy for Federal-Mogul soothes aftermarket retailers
DETROIT -- It’s hard to be frenemies in business.
Carl Icahn is selling auto-parts maker Federal-Mogul to competitor Tenneco in a deal valued at $5.4 billion. Part of the reason is that Federal-Mogul’s own customers -- retailers like AutoZone and O’Reilly Automotive -- bristled at the fact the billionaire investor was both their supplier and competitor through his many auto-related holdings, people familiar with the situation said. Icahn owns distributors like Auto Plus and retail shops like Pep Boys, meaning it sells to both everyday customers and to repair shops.
The sale is a step backward in Icahn’s goal to gain greater control of the replacement-parts business amid sweeping changes in the U.S. mobility sector. The investor has acquired a collection of transportation-related assets -- including a stake in ride-sharing operator Lyft and a controlling position in rental-car provider Hertz Global Holdings -- as he expects Americans to increasingly forgo owning their own cars.
Becoming a dominant maker and distributor of parts needed to service today’s cars and those future fleets, and installing them at his own repair chains like Aamco and Precision Auto Care, would have helped solidify his position throughout the supply chain. A spokesman for Icahn Automotive did not immediately reply to a request for comment on what the unit sale means for the billionaire’s parts and repair business.
For Federal-Mogul, the conflict between supplying aftermarket parts and potentially competing with its customers dates back about 23 years. In 1995, then-CEO Dennis Gormley launched an aggressive plan to start a 500-unit chain of stores. And he even built a $500,000 prototype to show to investors, only to tear it down in two weeks. The effort quickly fell apart as customers learned of the plan.
The structure of the Tuesday's transaction helps keep Icahn and his auto businesses at arm’s length from the Federal-Mogul unit bought by Tenneco. The purchase price includes an $800 million cash payment and 29.5 million shares of Tenneco, including non-voting stock, the companies said Tuesday in a statement. Icahn will have a combined 36 percent of Tenneco’s voting and non-voting stock, according to a slide deck on the deal.
Once the deal goes through, Lake Forest, Illinois-based Tenneco will split the combined businesses into two publicly traded companies to better compete in the shifting transportation space. One will specialize in powertrain technology and the other in auto parts. Icahn will retain a board seat at the powertrain company, but not the parts company.
Tenneco -- which will sell a broader range of parts after the combination -- will still do business with Icahn’s companies. He just won’t have control the way he did as owner of Federal-Mogul. Icahn also still plans to push ahead with growing its own retail and distribution business and using Hertz to help manage cars for Lyft drivers, one of the people familiar said.
The sale marks the latest shift in a car-parts industry that’s reorganizing as automakers prepare for an era of battery-powered and eventually driverless vehicles. Icahn made a move last year to sell Federal-Mogul’s Fel-Pro engine-parts unit, a business it’s owned since 1998. Tenneco was among suitors for some businesses of Fiat Chrysler Automobiles's Magneti Marelli components division as the Italian-American manufacturer prepared to spin off that unit.
The Federal-Mogul acquisition is expected to close in the second half of 2018, subject to approvals, with the Tenneco split to take place in the second half of 2019.
“Icahn Enterprises acquired majority control of Federal-Mogul in 2008 when we saw an out-of-favor market opportunity for a great company. During that time, we have built one of the leading global suppliers of automotive products,” Icahn said in the statement. “I am very proud of the business we have built at Federal-Mogul and agree with Tenneco regarding the tremendous value in the business combination and separation into two companies.”
Tenneco is taking after several peers by splitting itself up. Aptiv and Delphi Technologies formed as a result of the former Delphi Automotive breaking up last year. Autoliv, the Swedish-American airbag and seatbelt maker, is spinning off its driverless-electronics business, and Germany’s Continental is considering a shakeup of its structure.
Automotive News contributed to this report.