425: Atmus Filtration Technologies Inc. Launches Exchange Offer for Cummins Shares

Atmus Filtration Technologies Inc. is offering up to 67,054,726 shares of its common stock in exchange for outstanding shares of Cummins (CMI) common stock, targeting a 7% discount on Atmus shares.

Summary

• Atmus Filtration Technologies Inc. has filed a registration statement with the SEC for an exchange offer of up to 67,054,726 shares of ATMU common stock for outstanding shares of Cummins (CMI) common stock.
• The target discount on ATMU shares is 7% based on the average of the VWAPs of ATMU and CMI during the Pricing Period, subject to a Maximum Exchange Ratio.
• The Maximum Exchange Ratio is 13.3965x shares of ATMU per share of CMI tendered, representing a 15.0% discount to ATMU stock based on the closing prices of ATMU and CMI stock on February 13, 2024.
• The Pricing Period is expected to be March 7, 8, and 11, defined as the simple arithmetic average of the daily VWAPs of CMI and ATMU common stock during the three consecutive trading days.
• The Expiration is expected to be 12:00 midnight, New York City time, at the end of the day on March 13, 2024.
• Atmus reported FY23 net sales of $1.6 billion, a 4% year-over-year growth, and an adjusted EBITDA margin of 18.6%, a 300bps year-over-year margin expansion.
• The company's adjusted free cash flow was $152 million, with an 89% adjusted FCF conversion.
• Atmus has a clear strategy for growth as an independent company, focusing on core markets, supply chain transformation, industrial filtration expansion, and aftermarket growth.
• The company's capital structure includes $168 million in cash and cash equivalents, $600 million in term loan facility, and a revolving credit facility.
• Atmus is committed to sustainability, diversity, equity & inclusion, and the health and safety of its employees.

Sentiment

Score: 7

Explanation: The document presents a positive outlook for Atmus, highlighting its growth strategy, financial performance, and commitment to sustainability. The exchange offer is a strategic move that could unlock shareholder value. However, the document also acknowledges risks and uncertainties associated with forward-looking statements.

Positives

• Atmus has a clear strategy for growth as an independent company.
• The company has consistent and attractive financial results.
• Atmus has a strong aftermarket revenue, driving strong free cash flow and stable growth.
• The company has experienced less volatility and more growth than select OEMs over time.
• Atmus has a strong balance sheet with $168 million in cash and cash equivalents.
• The company is committed to leading in sustainability and has completed a double materiality assessment.
• Atmus has an experienced and diverse board of directors.
• The company has a proven track record of driving growth.
• Atmus has high aftermarket exposure in commercial vehicle markets, providing a strong, stable, recurring revenue base and high returns.
• The company has joint ventures in China and India, furthering its global reach and ability to develop products for the local market.

Negatives

• The historical combined financial statements include allocations of certain expenses from Cummins, which may not be representative of Atmus as a standalone entity.
• The company's future performance is subject to risks, uncertainties, and assumptions that are difficult to predict.
• The company's comparisons of results for current and prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such.

Risks

• The company's future business and financial performance and the anticipated timing or benefits of the exchange offer are subject to risks, uncertainties and assumptions.
• Actual outcomes and results may differ materially from what is expressed or forecasted in forward-looking statements.
• The company's industry and markets are subject to a high degree of uncertainty and risk due to a variety of factors.
• The company's assumptions and estimates of its and its industry's future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors.

Future Outlook

The company anticipates continued growth and attractive financial results, driven by its clear strategy for growth as an independent company.

Management Comments

• Atmus creates value for our customers through differentiated filtration solutions, a portfolio of quality products and the leading global distribution network.

Industry Context

The announcement reflects a strategic move by Cummins to spin off Atmus, allowing both companies to focus on their respective core competencies and pursue independent growth strategies. This is in line with the broader industry trend of companies streamlining their operations and unlocking shareholder value through strategic separations.

Comparison to Industry Standards

• Atmus's revenue growth has been more stable and consistent compared to select OEMs like Cummins, PACCAR, Volvo, Komatsu, and Caterpillar.
• Atmus's adjusted EBITDA margin of 18.6% is competitive within the filtration industry, but specific comparisons would require detailed analysis of peers like Parker-Hannifin, Donaldson Company, and Mann+Hummel.
• Atmus's adjusted FCF conversion of 89% is strong, indicating efficient cash generation relative to net income.

Management Changes

Related Party Transactions

• Includes sales to related parties of $390.8 million, $344.9 million and $328.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Stakeholder Impact

• Shareholders may benefit from the potential increase in value resulting from the strategic separation and the exchange offer.
• Employees will be part of a standalone company with a focused growth strategy.
• Customers will continue to receive differentiated filtration solutions and quality products.
• The company's commitment to sustainability will benefit the environment and the communities in which it operates.

Next Steps

• Investors and security holders are urged to read the Prospectus and any other relevant documents filed with the SEC before making any investment decision.
• The company will continue to execute its growth strategy and drive predictable, profitable, and cash generative growth.
• The company will review the results of its double materiality assessment to refine sustainability goals and targets.
• The company will release a sustainability report.

Key Dates