ArvinMeritor: "Financial Powerhouse"

Vowing to create a "financial powerhouse" with combined annual revenue of $7.5 billion - and huge cost savings down the road - Arvin Industries Inc. and Meritor Automotive Inc. announce they are merging.

On the surface, it appears Arvin's and Meritor's product lines are not exactly complimentary. Arvin is a leading exhaust and suspension product supplier, while Meritor produces roof, door and wheel products for light vehicles. About 60% of Meritor's business is supplying drivetrain systems and components for heavy trucks.

Look a little deeper, however, and the deal begins to make sense. Meritor gets the benefit of Arvin's strong presence in Europe. Meritor has coil springs and torsion and stabilizer bars to compliment Arvin's suspension products (coil over strut assemblies and shock absorbers).

With its leading exhaust position, Arvin knows plenty about a vehicle's undercarriage, which Meritor has recently identified as a strategic target.

Meritor's steel wheel business can move the two companies closer to supplying a full corner module. Plus, Arvin has wanted access to heavy truck exhaust business; now it has opportunities through Meritor's vast heavy truck customer base. Meritor also wants to expand its light vehicle business, which it does automatically by pairing with Arvin.

Despite logging strong profits for several years, both companies have been suffering from what they term "terribly undervalued" stock prices. The two top officers of the new ArvinMeritor Inc. admit that was at least part of the rationale for merging.

"It's not any secret that both companies wanted to grow and the low (stock) valuation probably does create an environment where mergers of equals are more likely to happen," says Bill Hunt, Arvin's chairman and chief executive at a press conference. However, he hastened to add that the companies were a good fit regardless of stock price. He predicts cost savings of $50 million in fiscal 2001 and $100 million by 2003.

"Our long-term financial goals are to grow sales organically by 10% and earnings per share by 15% to 18% annually," Mr. Hunt says. He adds there will be an "intense emphasis on cash" to make ArvinMeritor a strong investment grade company.

Both company's boards already have approved the deal, in which Arvin shareholders will receive one share of ArvinMeritor common stock plus $2 for each share of Arvin common stock. Meritor shareholders receive 0.75 shares in the new company for each share of Meritor common stock. Meritor shareholders will own 66% of the new company, with Arvin shareholders owning the remaining 34%.

Larry Yost, 62, chairman and CEO of Meritor, will be ArvinMeritor's chairman and CEO. Mr. Hunt, 55, will be vice chairman and president of the new company and is slated to take over as chairman when Mr. Yost retires. Until then they will comprise the Office of the Chairman, and will jointly oversee the company's six business groups.

ArvinMeritor's board of directors will have nine members from each of the current company's boards, plus a new independent director. It will be incorporated in Indiana, but headquarters will be in Troy, MI. All operating units will remain at their current locations.