425: Cummins Launches Exchange Offer for Atmus Filtration Technologies Shares

Cummins Inc. has commenced an exchange offer to allow its shareholders to exchange Cummins common stock for Atmus Filtration Technologies common stock at a 7% discount, subject to an upper limit.

Summary

• Cummins Inc. is offering to exchange up to 67,054,726 shares of Atmus Filtration Technologies Inc. common stock for outstanding shares of Cummins common stock.
• The exchange offer provides a 7% discount to the per-share value of Atmus common stock.
• For each $100 of Cummins common stock accepted, investors will receive approximately $107.53 of Atmus common stock, with an upper limit of 13.3965 shares of Atmus common stock per share of Cummins common stock.
• The value of the stocks will be determined by the average daily volume-weighted average prices (VWAPs) of Cummins and Atmus common stock on the NYSE during the three consecutive trading days ending on and including the second trading day immediately preceding the expiration date of the Exchange Offer.
• The averaging period, if the Exchange Offer is not extended or terminated, would be March 7, 8 and 11 2024.
• The final exchange ratio will be announced by press release and available on the website by 5:30 p.m. New York City time, on March 13, 2024, if the Exchange Offer is not extended or terminated.
• The Exchange Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on March 13, 2024, unless extended or terminated.
• If the exchange offer is oversubscribed, shares will be accepted on a pro rata basis, with an exception for odd-lot holders (less than 100 shares).
• If not all Atmus shares are exchanged, Cummins intends to make a tax-free distribution (clean-up spin-off) of the remaining shares to its shareholders.
• The completion of the Exchange Offer is subject to certain conditions as specified in the Prospectus.

Sentiment

Score: 7

Explanation: The announcement is generally positive as it provides shareholders with an opportunity to participate in the value of Atmus while allowing Cummins to streamline its operations. However, the upper limit and potential for proration introduce some uncertainty.

Positives

• Cummins shareholders have the opportunity to exchange their shares for Atmus shares at a 7% discount.
• Odd-lot holders (less than 100 shares) will not be subject to proration if the exchange offer is oversubscribed.
• A clean-up spin-off provides a mechanism for distributing any remaining Atmus shares to Cummins shareholders if the exchange offer is not fully subscribed.

Negatives

• If the upper limit is in effect, investors may receive less than $107.53 of Atmus common stock for each $100 of Cummins common stock tendered.
• The exchange offer may be oversubscribed, leading to pro rata acceptance of shares for holders of 100 or more shares.
• The value of Atmus and Cummins stock can fluctuate, impacting the actual value received in the exchange.

Risks

• The value of Cummins and Atmus common stock can fluctuate during the averaging period, affecting the exchange ratio.
• The exchange offer is subject to certain conditions, and Cummins may waive these conditions, potentially altering the terms of the offer.
• The upper limit on the exchange ratio could result in investors receiving less Atmus stock than anticipated.
• If the Exchange Offer is extended, the deadline for receipt of the holder's direction also may be extended.

Future Outlook

Cummins intends to make a tax-free distribution (clean-up spin-off) of any remaining Atmus shares to its shareholders if the exchange offer is not fully subscribed. The record date for the clean-up spin-off will be announced by Cummins.

Industry Context

This exchange offer is a strategic move by Cummins to divest its stake in Atmus Filtration Technologies, potentially allowing Cummins to focus on its core businesses while providing its shareholders with an opportunity to directly own shares in Atmus.

Comparison to Industry Standards

• Spin-offs and exchange offers are relatively common strategies for companies to divest non-core assets.
• Comparable transactions would include previous spin-offs in the industrial sector, such as Danaher's separation of Fortive.
• The 7% discount offered in the exchange is within the typical range for such transactions, but the ultimate value depends on the market's valuation of both Cummins and Atmus shares.

Stakeholder Impact

• Cummins shareholders are offered the opportunity to exchange their shares for Atmus shares.
• Atmus becomes a fully independent company.
• The transaction allows Cummins to focus on its core business.

Next Steps

• Cummins will provide daily VWAPs of both Cummins Common Stock and Atmus Common Stock during the pendency of the Exchange Offer.
• The final exchange ratio will be announced by press release and available on the website by 5:30 p.m. New York City time, on March 13, 2024, if the Exchange Offer is not extended or terminated.
• Cummins will announce the record date for the clean-up spin-off, if any.

Key Dates