Autoliv Plans Spinoff For Success In New Autonomous Vehicle World

Autoliv(ALV) is the world’s largest manufacturer of seat belts and air bags. Now, the Swedish company wants to spin off its fast-growing Electronics business. The Electronics business focuses on Active Safety as opposed to Autoliv’s core Passive Safety business. Autoliv stock jumped over 12% on the announcement, as investors anticipated strong value creation in the Electronics division with the anticipated shift towards autonomous vehicles.

The intent is to create two publicly traded companies capable of addressing two distinct, growing markets with leading product offerings and thereby create additional value for shareholders, customers and other stakeholders as compared to the current, combined structure of Autoliv. The strategic review process will evaluate this and other options. Although the strategic review has been initiated there is no guarantee that the review will result in any transaction, including a separation or listing of the businesses.

“The current operational model has served Autoliv very well, creating tremendous value for its shareholders and other stakeholders since the initial listing on the Stockholm stock exchange in 1994. Over the last decade our Electronics business has grown and matured next to our world leading Passive Safety business and today we have two distinct, successful businesses, each with its own unique business drivers. We believe it’s time to let them both individually maximize their potential,” said Jan Carlson, Chairman, President and CEO of Autoliv.

The Electronics division, which includes “Active Safety Products (automotive radars, cameras with driver assist systems, night vision systems and positioning systems), Restraint Control and Sensing and Brake Systems”, had $2.216 Billion in sales in 2016, but rapid growth is expected to take that to over $3 Billion by 2020. The division partners with leaders in autonomous vehicles including NVIDIA(NVDA) and Velodyne LiDAR.

Passive Safety is significantly larger, with $7.9 Billion in 2016 sales. While growing slower, it has been gaining market share, particular in the air bag space with Takata’s struggles. Revenue is expected to top $10 Billion in 2020. The focus for this company will be on increased profitability.

The objective for Passive Safety is to remain the market and innovation leader while maintaining a high level of quality and capital efficiency and further improving its margin performance.

Passive Safety is the global market leader with a market share of 39% in 2016. Over the last 2.5 years Passive Safety’s share of order intake has been around 50% or more indicating significant market share expansion ahead. Standalone, Passive Safety will have increased freedom to further optimize its performance.

If the company opts to move ahead with the spinoff plan, it is anticipated that it will take approximately one year to complete the process.

DisclosureL The author holds no position in any stock mentioned