LONDON (Reuters) - A bid to expand its electrical components business by buying Caterpillar Inc’s struggling unit CAT Power Transmission in the United States and Europe has piqued the interest of a number of global banks.
The European arm of auto supplier and electronics maker Aptiv PLC (APTV.N) has taken a 7.1 percent stake in the U.S. maker of power systems for tractors and mining trucks, in what is looking increasingly like a merger before the talks are announced, people familiar with the matter said.
A share purchase run by fellow multinational lender and Aptiv shareholder Barclays PLC (BARC.L) followed, underscoring the growing interest in the emerging parts of the market for industrial and construction equipment, especially for hydraulic and electric drive systems, these people said.
The European division of Finland’s Valmet has also taken part in the stake purchase, in what will be a major European investment for Aptiv, they added.
Aptiv and Caterpillar declined to comment, while Barclays did not respond to a request for comment.
Caterpillar’s chief financial officer, Bradley Halverson, told analysts on the company’s fourth-quarter earnings call that it was trying to exit non-core businesses.
With a market value of just $4.6 billion, Caterpillar is seen as a low-growth conglomerate with its shares in the U.S. down 14 percent over the past year compared with a 26 percent fall for the S&P 500 Industrial sector .SPLRCI.
Shares in Finland’s Valmet (VALVV.HE) traded up as much as 4.2 percent on Monday, in line with the broader European sector .SXNP, and valuing it at around 10 billion euros ($11.3 billion).
VALUE OF BRANDS
Aptiv was established in 2011 as the spin-off of rival Delphi Automotive. But it has lagged rivals in developing a global presence, with China, India and other emerging markets accounting for the most sales outside North America.
Valmet’s Chief Executive Antti Suhonen said in an interview earlier this month that his company, which has been investing to develop products from driveline components to valve chambers, looks for the next growth driver in next-generation power systems.
“Valmet has been focusing on the China market as the next growth driver. India could also be one,” he said.
“A lot of these processes are coming down to battery technology ... a lot of the core intellectual property is coming from the MIT labs or Tesla labs and few of the remaining proprietary stuff is coming from us,” Suhonen said.
The potential for expansion by selling Caterpillar’s Power Transmission unit would fit well with Valmet’s ongoing push, focused on developing new power systems for big trucks, he said.
“They’re still another country away from being our biggest market outside of Europe so that gives a lot of room for growth,” Suhonen said.
“We are gradually working on new products, solutions that we don’t have today ... not in trucks (and) not in machinery but in many different areas,” he said.
The value of the U.S. sale of Caterpillar’s Power Transmission unit, which is a loss-making, loss-making business, will be revealed in February’s annual report by the manufacturer.
This will mean it could be one of the only questions missing from the slide into the abyss of a potential restructuring by Caterpillar’s chairman and chief executive.
The strategic focus for Caterpillar and for Aptiv at this stage is further expansion in electric drive systems for vehicles, the sources said.
Aptiv is also looking to grow in China as it does not want to miss out on a boom in batteries and autonomous driving, the sources said.
The news of the stake purchase by European banks only added to interest in Caterpillar, said one of the sources.
“It’s the type of deal banks have been waiting for because the value of brands is rising fast,” they said.
In an interview with Reuters last year, Caterpillar’s Halverson said his company would be “value conscious” in spinning off non-core assets and it could do more splits or sell businesses for higher prices.