Why Shares of Autoliv Jumped 12% Today

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What happened

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Shares of Autoliv, Inc. (NYSE: ALV) surged on Thursday. The Stockholm-based supplier of automotive safety systems said that it's considering a proposal to split into two companies: one focused on traditional passive safety systems like airbags and the other on emerging technologies important to self-driving cars. 

Investors seem to like the idea. As of noon EDT, Autoliv's shares were trading at $127.07, up 12.2% from Wednesday's closing price. 

So what

Autoliv is a major auto industry supplier focused on safety systems. Its passive safety division is the world's largest maker of airbags and seatbelts, and its electronics unit is an important player in the fast-growing market for advanced driver-assist systems. The latter includes hardware and software that will be important to autonomous vehicles, a market that is expected to boom over the next decade.

Its electronics unit is right in the thick of the self-driving technology chase: It has teamed up with Volvo Cars and chipmaker NVIDIA (NASDAQ: NVDA) to develop a Level 4 self-driving system for sale in 2021. But the market hasn't given Autoliv's high-tech efforts much credit: Its shares have been roughly flat for the last year, even as its passive safety unit has gained market share. 

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The market-moving news is that Autoliv will conduct a "strategic review" with the intent of separating those two lines of business into stand-alone companies. The idea is that one of those companies (passive safety) would have steady profits from its big but stable book of business, and the other (electronics) would have significant growth potential as self-driving systems come to market.  

The challenge for Autoliv has been that investors see it mostly as a well-run but unexciting traditional auto supplier. Given the intense investor interest in all things related to self-driving cars, it's not too hard to see how the combined value of those two companies could significantly exceed the value of Autoliv today. 

Now what

Autoliv made clear that this isn't yet a done deal. It said that if it decides to proceed with the separation after the strategic review is complete, that separation process will take about a year. It promised to provide timely updates as warranted. 

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Autoliv. The Motley Fool has a disclosure policy.