Adient, a global leader in automotive seating, announced it has closed the transactions contemplated by its previously announced definitive agreements with joint venture partner Yanfeng Automotive Trim Systems Ltd. (YF) to, among other items, end its YFAS joint venture in China.
The completed transactions will enable Adient to drive its strategy in China independently, which is expected to result in a variety of benefits, including capturing growth in profitable and expanding segments; improving the integration of the company’s China operations; and allowing for more certain value realization relative to status quo, where cash and value are generated from dividends at entities not in Adient’s control.
“We are pleased to have successfully closed these transactions, which offer Adient the opportunity to drive our China strategy independently and position the company for future growth in the world’s largest automotive market,” said Doug Del Grosso, president and CEO of Adient.
Details of the transactions
Under the agreements, Adient sold its 49.99% interest in YFAS to YF and its minority interest in certain other joint ventures and acquired YFAS’s 50% equity interest in CQYFAS, bringing Adient’s ownership stake in CQYFAS to 75%, and YFAS’s 100% equity interest in YFASLF.
Following the acquisition of YFAS’s interests in CQYFAS and YFASLF, Adient will consolidate those businesses. YF will operate the remainder of YFAS as a wholly owned enterprise.
Total net proceeds (including dividends) related to the transactions are expected to total approximately $1.4 billion. Including the impact of currency hedges executed post-announcement and other provisions contained in the agreement (i.e., ability to consolidate the cash balance at CQYFAS), net proceeds collected at closing totaled $695 million, and final proceeds of about $625M are expected to be received prior to calendar year-end.
As previously noted, in conjunction with these transactions, Adient signed an agreement with Chongqing Boxun Industrial Co., Ltd. (Boxun), its joint venture partner in CQYFAS. The agreement provides Boxun with a put right to sell and, if exercised, requires Adient to buy Boxun’s 25% interest in CQYFAS. The put right price is ~ $125M. If Adient buys Boxun’s 25% interest, Adient would own 100% of CQYFAS.
Proceeds from the transactions are expected to be used by Adient to pre-pay a portion of the company’s debt; fund Boxun’s put right, if exercised; and for general corporate purposes.
Remaining a market leader in China
Going forward, Adient’s China business is projected to have ~$4.5 billion in annual consolidated and unconsolidated sales, with far-reaching customer and geographic coverage through its nine major entities, three state-of-the-art technical centers and more than 800 engineers.
Pro forma Adient
Compared to the company’s FY21 outlook and based on the execution of these transactions and other minor portfolio adjustments in China, global consolidated sales and consolidated Adj.-EBITDA are expected to increase annually by between $700M-$800M and between $90M-$100M, respectively. In addition, Adient’s equity income post-closing is expected to decline to between ~$90-$100M annually. Net income and EPS improvement are forecast post-closing, driven by the expected significant reduction in debt and the corresponding benefit of lower financing costs.
