No surprise really, which is why shares of Autoliv (ALV) climbed only 0.75% on the news today. But it’s still good to have a formal decision: After completing its review of the business, the company’s board has decided to spin off Autoliv’s auto electronics safety business as a separate company with the spin off occurring in 2018. Current shareholders of Autoliv will get shares of the new company as a dividend proportional to the shares they own of Autoliv.
The reasoning behind the spin off is very straightforward: While Autoliv’s passive safety unit with products such as seat belts and air bags is a dominant player in that market (38% global market share), that business doesn’t have the growth rate or the high-profile growth prospects that the company’s electronics unit has. This business sells into the fast growing market for existing safety electronics–auto-braking and lane change sensors–as well as into the still developing market for the electronics for autonomous vehicles. The board’s thinking is that the older business has acted as a drag on the market valuation of the newer business. Splitting the two will lead to the market awarding the electronics business a higher multiple that would better reflect its growth prospects.
The spinoff will get Autoliv’s assets of active safety products (automotive radars, cameras with driver assist systems, night vision systems and positioning systems), restraint control, and sensing and brake systems. Projections say the total available market for safety electronics will grow from around $20 billion in 2017 to more than $40 billion in 2025. (In contrast projections show the market for passive safety products growing to $25 billion in 2025 from $20 billion in 2017.) The electronics unit has partnerships with Volvo, Nvidia (NVDA) and LiDAR expert Velodyne. In 2016, electronics sales were $2.216 billion, with a target of $3 billion in 2020. Passive safety sales were $7.9 billon in 2016 with a goal of $10 billion in 2020.
The passive safety unit will continue to operate under the Autoliv name after the spin off. The name of the new company will be announced at a later date. Both companies are expected to be listed in New York and Stockholm.
Shares of Autoliv are up 4.92% since I added them to my Jubak Picks Portfolio on April 29, 2016.