Meritor, Inc. announced that ZF Meritor LLC, a joint venture between a Meritor, Inc. subsidiary and ZF Friedrichshafen AG and Meritor Transmission Corporation have reached a settlement agreement with Eaton Corporation relating to the antitrust lawsuit filed in 2006.
Under the terms of the agreement, Eaton has agreed to pay $500 million to ZF Meritor LLC. Meritor will receive net proceeds of $209 million. ZF Meritor LLC and Meritor Transmission Corporation have agreed to dismiss all pending antitrust litigation with Eaton. The settlement agreement is subject to ZF Friedrichshafen AG corporate approval, which is expected to occur in early July. Meritor expects to receive proceeds from the settlement on or about July 15, 2014.
Meritor’s Chairman and CEO, Ike Evans, said, "We have reached an agreement with Eaton that we believe is in the best interests of the Company and our shareholders. We’ll use these proceeds to accelerate our efforts to achieve our balance sheet goals under our M2016 plan. This is an important outcome for Meritor that delivers significant benefits to the Company, our shareholders and our customers. We are successfully putting this lawsuit behind us as we continue to execute on our plan to drive value for all shareholders.”
Meritor remains committed to maintaining its balanced and disciplined approach to capital allocation, deploying capital to areas where it will generate the best long-term value for its shareholders.
Based on a thorough review of its options, Meritor has determined that it will use the $209 million of net proceeds from the settlement to pre-fund the next three years of mandatory pension contributions in its United States and United Kingdom pension plans, consistent with the Company’s efforts to de-risk its pension obligations and continue to strengthen its balance sheet. Using such proceeds to pre-fund the company’s global pension plans will accelerate the Company’s path toward its M2016 objective of reducing net debt, including retirement liabilities, to less than $1.5 billion.
Meritor also announced today that its board of directors has authorized the repurchase of up to $210 million of the company’s equity or equity-linked securities funded with a portion of future free cash flow. The Company expects repurchases under this program to be made through open market or privately negotiated transactions, which would commence upon achievement of its M2016 debt reduction target. With the proceeds from the Eaton lawsuit deployed to pre-fund pension contributions, the Company now expects to achieve this target in the second half of calendar year 2015. The actual number of shares repurchased will depend on a variety of factors, including price, legal and regulatory restrictions, compliance with debt covenants, market conditions and corporate liquidity requirements.
Mr. Evans continued, “As we have outlined previously, a settlement agreement with Eaton was not factored into our M2016 plan. We remain committed to our strategy of further de-levering and strengthening our balance sheet; however, with these additional proceeds, we are now better positioned to use a portion of our future free cash flow to return capital to our shareholders over time. This new repurchase authorization reaffirms our Board’s confidence in the company's strategy and long-term growth potential.”
A presentation outlining additional details of this announcement is available on the Investor Relations section of the company's website at http://investors.meritor.com/phoenix.zhtml?c=122961&p=irol-presentations and will be filed with the U.S. Securities and Exchange Commission (“SEC”) and available on the SEC’s website at www.sec.gov.