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Cummins to Acquire Meritor for $3.7 Billion

Power generation products manufacturer Cummins Inc. (NYSE: CMI) recently revealed that it has entered into a definitive agreement to acquire automobile components producer Meritor, Inc. (NYSE: MTOR) for $3.7 billion.

Following the news, shares of the company declined 1.8% to close at $214.09 on Tuesday.

Under the terms of the deal, Cummins will shell out $36.50 in cash per Meritor share for a total transaction value of roughly $3.7 billion.

Cummins expects to finance the deal with a combination of cash and debt.

Strategic Impact

Cummins’ acquisition of Meritor will make it one of the rare companies to provide integrated powertrain solutions across combustion and electric power applications.

Further, with the penetration of electric vehicles increasing by the day, Cummins expects that eAxles will be an important integration point within hybrid and electric drivetrains. Thus, with Meritor’s expertise within its ranks, Cummins expects to deliver market-leading solutions to global customers in the electric vehicle space.

Management Commentary

The CEO of Cummins, Tom Linebarger, said, “The acquisition of Meritor is an important milestone for Cummins. Meritor is an industry leader, and the addition of their complementary strengths will help us address one of the most critical technology challenges of our age: developing economically viable zero carbon solutions for commercial and industrial applications.”

Stock Rating

Recently, Evercore ISI analyst David Raso reiterated a Buy rating on the stock. The analyst, however, lowered the price target from $278 to $263, which implies upside potential of 22.9% from current levels.

The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 5 Buys and 4 Holds. The average Cummins price target of $268.33 implies that the stock has upside potential of 25.3% from current levels. Shares have declined 14.7% over the past year.

Positive Sentiment

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on CMI. Further, 17.9% of portfolios tracked by TipRanks increased their exposure to CMI stock over the past 30 days.

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