Coming into Wednesday trading, Tenneco stock was trading for about 2 times estimated 2022 earnings per share.
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Tenneco shares were skyrocketing Wednesday after the automotive parts manufacturer said it would be acquired and taken private by Apollo Funds for $7.1 billion, including debt. The deal comes just one day after another parts maker, Meritor , was bought.
Apollo Funds (ticker: APO
) will pay Tenneco shareholders $20 a share in an all-cash transaction, representing a 100.4% premium to Tenneco’s closing price of $9.98 on Tuesday. Tenneco ( TEN
) will become a privately run company after the deal closes in the second half of 2022.
“In Apollo, we have a partner that recognizes the strength of our product portfolio and our ability to serve leading OEM [original equipment manufacturer] and aftermarket blue-chip customers globally,” said Tenneco CEO Brian Kesseler. “Specifically, this partnership will allow us to continue to invest in and grow Tenneco’s multiple segments and global footprint.”
Tenneco stock was up more than 93% to $19.28 on Wednesday. Apollo stock was down 0.9%.
Tenneco also reported an adjusted loss in the fourth quarter of 11 cents a share. Analysts were expecting earnings to come in at 16 cents a share. The unadjusted loss was 42 cents a share. Revenue totaled $4.4 billion, down 6% year over year but beat the consensus forecast of $4.15 billion.
For the 2021 fiscal year, Tenneco reported $18 billion in revenue, beating consensus estimates of $17.8 billion. The company’s adjusted earnings were $1.97 a share, coming in lower than the $2.25 expected by analysts.
The company said it was not providing guidance for 2022 due to the pending transaction with Apollo.
Coming into Wednesday trading, Tenneco was trading for about 2 times estimated 2022 earnings—more evidence that good things are happening to cheap stocks. Tuesday, Cummins ( CMI
) announced plans to purchase truck parts maker Meritor (MTOR), whose stock was trading for less than 7 times estimated 2022 earnings when the deal was announced.
Auto and truck parts stocks don’t get high price/earnings ratios because car and truck markets don’t grow as quickly as the overall economy. General Motor (GM) stock, for another example, trades for about 7 times estimated 2022 earnings.
There is also the fear that some traditional technologies will be disrupted by electric vehicles. Tenneco makes pistons and spark plugs. Those might have challenges down the road. But it also makes equipment for suspensions and brakes. EVs will still need those, just like they will need axles, the kind Meritor makes. Some players, such as Apollo and Cummins , are betting on that fact.
Other stocks that might move on the two deals could be American Axle & Manufacturing (AXL) as well as Allison Transmission (ALSN). That pair trades for roughly 7 and 8 times estimated 2022 earnings, respectively.
American Axle stock was up 3% in premarket trading Wednesday. Allison shares were flat.
Write to Sabrina Escobar at [email protected]
