425: Cummins Launches Exchange Offer for Atmus Filtration Technologies Shares

Cummins Inc. has commenced an exchange offer to trade up to 67,054,726 shares of Atmus Filtration Technologies Inc. common stock for outstanding shares of Cummins common stock.

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 commenced on February 14, 2024.
• For every $100 of Cummins common stock accepted, investors will receive approximately $107.53 of Atmus common stock, subject to a limit of 13.3965 shares of Atmus per Cummins share.
• The value of the stocks will be determined by the average daily volume-weighted average prices (VWAPs) of Cummins and Atmus shares during the three-day Averaging Period.
• 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 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 odd-lot holders (less than 100 shares) not subject to proration.
• If not all Atmus shares are exchanged, Cummins intends to distribute the remaining shares to its shareholders in a tax-free spin-off.
• The completion of the Exchange Offer is subject to certain conditions outlined in the Prospectus.
• Cummins has retained Okapi Partners LLC as the information agent for the exchange offer.

Sentiment

Score: 6

Explanation: The document outlines a standard corporate action (exchange offer) with both potential benefits and risks for investors. The sentiment is neutral, reflecting the need for investors to carefully evaluate the terms and market conditions.

Positives

• Cummins shareholders have the opportunity to exchange their shares for Atmus shares at a potential discount.
• The exchange offer provides a mechanism for Cummins to reduce its stake in Atmus.
• Odd-lot holders of Cummins stock are not subject to proration, ensuring their tenders are fully accepted.
• If the exchange offer is not fully subscribed, Cummins intends to distribute the remaining Atmus shares to its shareholders in a tax-free spin-off.

Negatives

• If the upper limit on the exchange ratio is in effect, investors may receive less than $107.53 of Atmus stock for each $100 of Cummins stock tendered.
• The exchange offer is subject to proration if oversubscribed, potentially reducing the number of shares accepted from larger holders.
• The value of the exchanged shares is subject to market fluctuations during the Averaging Period.

Risks

• The value of both Cummins and Atmus shares can fluctuate, impacting the exchange ratio and the value received by investors.
• The exchange offer is subject to certain conditions, and Cummins may terminate or extend the offer.
• If the exchange offer is not fully subscribed, the subsequent spin-off of remaining Atmus shares could dilute the value of Atmus shares.
• Forward-looking statements are subject to uncertainties and risks that could cause actual results to differ materially.

Future Outlook

Cummins intends to make a tax-free distribution to its shareholders of any Atmus shares not exchanged in the Exchange Offer, effected as a dividend on a pro rata basis.

Industry Context

Companies often use exchange offers to divest holdings in subsidiaries or other entities, allowing shareholders to directly participate in the restructuring. This transaction allows Cummins to reduce its stake in Atmus, which was spun off in 2023, while providing Cummins shareholders with an option to invest directly in Atmus.

Comparison to Industry Standards

• Exchange offers are a fairly common method for companies to divest stakes in subsidiaries, with the terms (discount, upper limit) varying based on market conditions and the specific goals of the parent company.
• Similar transactions include the exchange offer by Zoetis to repurchase shares from Pfizer, and the exchange offer by Dell Technologies to acquire shares of VMware.
• The 7% discount offered by Cummins is within the typical range for such transactions, but the specific terms should be evaluated based on the relative valuations of Cummins and Atmus.

Stakeholder Impact

• Cummins shareholders have the opportunity to exchange their shares for Atmus shares.
• Atmus shareholders may see changes in the shareholder base as a result of the exchange offer.
• Employees of both Cummins and Atmus may be indirectly affected by the outcome of the exchange offer.

Next Steps

• Cummins will provide daily VWAPs of both Cummins and Atmus common stock on the website.
• Cummins will provide indicative exchange ratios on the website prior to the Averaging Period.
• The final exchange ratio will be announced by press release and 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