Aptiv to separate its Electrical Distribution Systems business

Aptiv (APTV) announced that its Board of Directors has unanimously approved a plan to separate its Electrical Distribution Systems, or EDA, business from Aptiv, creating two independent companies, each optimally positioned to serve their customers and create value for their shareholders. As separate companies, Aptiv and EDS are each expected to benefit from strategies and operating initiatives that are focused on each company’s product portfolio, customer challenges, market opportunities, and financial objectives. Following the separation, Aptiv – comprising Advanced Safety & User Experience and the Engineered Components Group – will offer a full sensor-to-cloud technology stack, including industry-leading open-architected ADAS and in-cabin user experience software platforms, and a broad range of interconnects and components that optimize the distribution of signal, power, and data for next-generation applications across diverse end markets. Aptiv is targeting mid-to-high single digit revenue growth, low-to-mid teens GAAP operating income margins, high-teens-to-low-twenties Adjusted EBITDA margins, and significant free cash flow for the company. The Company estimates that Aptiv had $12.1B in revenues, including intercompany sales to EDS that are currently eliminated in consolidation, $1.4B in U.S. GAAP operating income, and $2.3B in Adjusted EBITDA for 2024, excluding the EDS business to be separated. In the medium term, Aptiv is targeting pro forma EDS to generate mid-single digit revenue growth, mid-to-high single digit GAAP operating income margins, high-single to low-double digit Adjusted EBITDA margins, and solid free cash flow. The Company estimates that EDS had $8.3 B in revenues, $400M in U.S. GAAP operating income, and $800M in Adjusted EBITDA for 2024, excluding the Aptiv business from which it will be separated. The separation transaction is expected to be effected through a spin-off of EDS, under which Aptiv shareholders will retain their current shares of Aptiv stock and receive a pro-rata dividend of shares of the new EDS company stock. The transaction is expected to be tax-free to Aptiv and its shareholders for both Swiss and U.S. federal income tax purposes. Aptiv is targeting completion of the separation by March 31, 2026, subject to final approval by Aptiv’s Board of Directors and other customary conditions.