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.
• The offer involves exchanging up to 67,054,726 shares of Atmus common stock for outstanding shares of Cummins (CMI) common stock.
• The target discount on Atmus shares is 7% based on the average VWAPs of Atmus and CMI during the pricing period.
• The maximum exchange ratio is 13.3965x shares of Atmus per share of CMI tendered, representing a 15.0% discount based on closing prices on February 13, 2024.
• The pricing period is expected to be March 7, 8, and 11.
• The expiration date 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.
• The adjusted EBITDA margin for FY23 was 18.6%, a 300bps year-over-year margin expansion.
• Adjusted Free Cash Flow for FY23 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.
• Atmus's capital structure includes $168 million in cash and cash equivalents, $600 million in term loan facility, and a revolving credit facility.
• Net debt stands at $432 million, with a net leverage of 1.4x.
• The company emphasizes its commitment to sustainability, diversity, and ethical governance.

Sentiment

Score: 7

Explanation: The document presents a positive outlook for Atmus, highlighting its strong financial performance, growth strategy, and commitment to sustainability. However, it also includes cautionary language regarding forward-looking statements and potential risks.

Positives

• Atmus has a clear strategy for growth as an independent company.
• The company reported strong financial results for FY23, including $1.6 billion in net sales and an 18.6% adjusted EBITDA margin.
• Atmus has a strong aftermarket revenue base, representing approximately 81% of net sales.
• The company has a large and growing installed base with multi-year useful lives.
• Atmus has a experienced and diverse board of directors.
• Atmus has a experienced leadership team with a proven track record of driving growth.

Negatives

• The presentation includes allocations of certain general, administrative, sales and marketing expenses and cost of sales from Cummins corporate office and from other Cummins businesses to Atmus.
• The allocations have been determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the historical combined financial statements had Atmus been an entity that operated separately from Cummins during the periods presented.

Risks

• The document contains forward-looking statements that are subject to risks, uncertainties, and assumptions.
• Actual outcomes and results may differ materially from what is expressed or forecasted in these statements.
• The company's future performance is subject to a variety of factors that are difficult to predict.
• The historical combined financial statements also include allocations of certain general, administrative, sales and marketing expenses and cost of sales from Cummins corporate office and from other Cummins businesses to Atmus.

Future Outlook

The company anticipates continued growth and profitability, driven by its strategic initiatives and strong market position. However, these statements are forward-looking and subject to risks and uncertainties.

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

Atmus operates in the filtration industry, serving both on-highway and off-highway markets. The company's performance is influenced by trends in these sectors, including emissions regulations, aftermarket demand, and technological advancements.

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 high aftermarket exposure provides a strong, stable, recurring revenue base and high returns, which is a common strategy among filtration companies.
• The company's focus on sustainability aligns with increasing industry emphasis on environmental responsibility.

Stakeholder Impact

• Shareholders: The exchange offer provides an opportunity for Cummins shareholders to exchange their shares for Atmus shares.
• Employees: The company emphasizes the health and safety of its employees.
• Customers: Atmus aims to create value for customers through differentiated filtration solutions.
• Suppliers: The company is focused on transforming its supply chain.
• Creditors: Atmus has a solid capital structure with a manageable debt level.

Next Steps

• Completion of the exchange offer.
• Continued execution of the company's growth strategy.
• Refinement of sustainability goals and targets based on the double materiality assessment.

Key Dates