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 is offering to exchange shares of Atmus Filtration Technologies for Cummins common stock at a 7% discount, subject to an upper limit.
• The exchange offer commenced on February 14, 2024, and is for up to 67,054,726 shares of Atmus common stock.
• For each $100 of Cummins common stock accepted, investors will receive approximately $107.53 of Atmus common stock, capped at 13.3965 shares of Atmus per Cummins share.
• The value of the stocks will be determined using the average daily volume-weighted average prices (VWAPs) over a three-day period.
• The averaging period is scheduled for March 7, 8, and 11, 2024, unless the offer is extended or terminated.
• Indicative exchange ratios will be provided daily, starting from the third trading day of the exchange offer, until the averaging period.
• The final exchange ratio will be announced on March 13, 2024.
• The exchange offer and withdrawal rights expire at midnight, New York City time, on March 13, 2024, unless extended.
• If oversubscribed, shares will be accepted on a pro rata basis, with exceptions for odd-lot holders.
• If not fully subscribed, Cummins intends to distribute remaining Atmus shares to its shareholders via a tax-free spin-off.
• The completion of the exchange offer is subject to certain conditions.
• Information is available on www.okapivote.com/CumminsAtmusExchange and through the SEC website.
• Okapi Partners LLC is the information agent for the exchange offer.

Sentiment

Score: 7

Explanation: The announcement is generally neutral to positive. It provides an opportunity for Cummins shareholders to exchange their shares for Atmus shares at a discount, but there are also risks associated with the upper limit and potential proration. The potential for a clean-up spin-off is a positive aspect.

Positives

• Cummins shareholders have the opportunity to exchange their shares for Atmus shares at a discounted rate.
• The potential for a tax-free distribution of remaining Atmus shares via a spin-off could benefit Cummins shareholders if the exchange offer is not fully subscribed.
• The exchange offer provides Cummins with a mechanism to reduce its stake in Atmus.

Negatives

• The upper limit on the exchange ratio could result in shareholders receiving less than the anticipated $107.53 of Atmus stock for every $100 of Cummins stock.
• If the Exchange Offer is oversubscribed, shares of Cummins Common Stock that are validly tendered will generally be accepted for exchange on a pro rata basis in proportion to the number of shares validly tendered.

Risks

• The value of Atmus and Cummins shares could fluctuate during the averaging period, impacting the final exchange ratio.
• The exchange offer is subject to certain conditions, and Cummins may waive these conditions.
• The exchange offer may be extended or terminated.
• Forward-looking statements are subject to uncertainties, risks, and changes in circumstances.

Future Outlook

Cummins intends to make a tax-free distribution to its shareholders of the shares of Atmus Common Stock that were offered but not exchanged in the Exchange Offer effected as a dividend on a pro rata basis (the 'clean-up spin-off') to holders of Cummins Common Stock as of the record date.

Industry Context

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

Comparison to Industry Standards

• Exchange offers are a fairly common corporate finance tool, with the 7% discount being within a typical range for such transactions.
• Similar transactions include the exchange offers made by large conglomerates to divest stakes in subsidiaries, such as those seen in the industrial and consumer goods sectors.
• The pro rata acceptance of shares in oversubscribed offers is standard practice to ensure fairness among shareholders.

Stakeholder Impact

• Cummins shareholders have the opportunity to exchange their shares for Atmus shares.
• Atmus will have a more diverse shareholder base if the exchange offer is successful.
• The exchange offer could impact the trading volume and price of both Cummins and Atmus shares.

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 on March 13, 2024.
• Cummins may extend the Exchange Offer in the circumstances described in 'The Exchange Offer Ex/ens/on; Amendment Extension or Amendment by Cummins' in the Prospectus.

Key Dates