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 Cummins common stock.
• The exchange offer commenced on February 14, 2024.
• The offer allows Cummins shareholders to exchange their shares for Atmus shares at a 7% discount, subject to an upper limit of 13.3965 Atmus shares per Cummins share.
• For each $100 of Cummins Common Stock accepted in the Exchange Offer, you will receive approximately $107.53 of Atmus Common Stock, subject to 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) on the New York Stock Exchange during the three consecutive trading days ending on and including the second trading day immediately preceding the expiration date of the Exchange Offer (March 7, 8 and 11 2024).
• The final exchange ratio will be announced on March 13, 2024.
• The Exchange Offer and withdrawal rights will expire at 12:00 midnight, New York City time, at the end of the day 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-lots' (less than 100 shares).
• 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.
• Okapi Partners LLC is the information agent for the exchange offer.

Sentiment

Score: 7

Explanation: The document is a factual announcement of an exchange offer. The sentiment is neutral to slightly positive as it provides an opportunity for shareholders to potentially benefit from a discount. However, the upper limit and potential for proration temper the positive sentiment.

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 offer is oversubscribed.
• Any remaining Atmus shares after the exchange may be distributed to Cummins shareholders via a tax-free spin-off, providing additional value.

Negatives

• The exchange offer is subject to an upper limit, potentially reducing the value received for Cummins shares if the limit is in effect.
• If the Exchange Offer is oversubscribed, shares will be accepted on a pro rata basis, which may result in shareholders not being able to exchange all of their shares.
• Holders of Cummins Common Stock validly tendered and accepted and exchanged in the Exchange Oller will not participate in the clean-up spin-off (unless they otherwise own shares of Cummins Common Stock that were not tendered and accepted for exchange in the Exchange Oller as of the relevant record date).

Risks

• The value of Atmus and Cummins shares could fluctuate during the Averaging Period, affecting the final 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 shareholders receiving less than the anticipated 7% discount.
• The market may not value Atmus shares at the anticipated level after the exchange, impacting the overall benefit to Cummins shareholders.

Future Outlook

Cummins intends to make a tax-free distribution (clean-up spin-off) to its shareholders of any Atmus shares not exchanged in the Exchange Offer.

Industry Context

Companies often use exchange offers to divest holdings in subsidiaries or other entities, allowing shareholders to participate directly in the value realization. This move allows Cummins to further separate from Atmus, potentially streamlining its operations and focusing on its core business.

Comparison to Industry Standards

• Spin-offs and exchange offers are common strategies for large corporations to unlock value from subsidiaries, with companies like DowDuPont and HP having executed similar transactions.
• The 7% discount offered in this exchange is within the typical range for such offers, but the upper limit on the exchange ratio is a factor that needs to be considered by investors.
• The pro rata acceptance mechanism is standard practice in oversubscribed exchange offers to ensure fair treatment of shareholders.

Stakeholder Impact

• Cummins shareholders have the opportunity to exchange their shares for Atmus shares.
• Atmus shareholders may see changes in the shareholder base and trading volume of their stock.
• Employees of both companies may experience uncertainty during the transition period.

Next Steps

• Cummins will provide daily VWAPs of both Cummins and Atmus common stock on the website.
• Indicative exchange ratios will be provided prior to the Averaging Period.
• The final exchange ratio will be announced on March 13, 2024.
• Cummins will announce the record date for the clean-up spin-off, if any.

Key Dates