Automotive supplier Delphi Automotive PLC will spin off its engine-components unit into a separate company, a move designed to allow the remaining company to focus on an advanced electronics business that could be a big player in the race to develop self-driving cars.
The move, announced Wednesday and expected to be completed by next March, comes as Delphi is trying to keep pace with Silicon Valley companies and other tech firms edging into the auto industry. The engine business will become its own publicly traded entity, potentially making Delphi's separate electronics business more attractive at a time when other automotive companies have been acquired by tech giants willing to pay big premiums.
Continue Reading Below
"As the pace of change accelerates and the needs of our customers continue to evolve we feel now is the time" for the split into two companies, Kevin Clark, Delphi's chief executive, told investors on a conference call.
The announcement comes shortly after Intel Corp. agreed to pay $15.3 billion for Mobileye NV, an Israeli car-camera pioneer selling to most auto makers looking to develop autopilot features. The deal's price tag is roughly equivalent to the market capitalization of Fiat Chrysler Automobiles NV.
Samsung recently completed its $8 billion deal to buy Harman International Industries Inc., a one-time giant in car audio that expanded by boosting its in-vehicle connectivity and telematics software and parts.
Delphi's $12 billion advanced electronics business is its top revenue generator and employs about 145,000 people globally. Its $4.5 billion engine, or powertrain, business employs about 20,000 employees around the world.
Investors reacted positively to the news, sending Delphi's stock price surging more than 11% in early trading on the New York Stock Exchange.
The decision to split the company was driven in part by shareholder concerns over lower profit potential from its investments in the hardware-heavy engine-components business compared with the software-focused advanced electronics unit, Mr. Clark said.
Delphi's CEO declined to comment when asked by an analyst about speculation it has held discussions with German rival Continental AG about combining the two companies' powertrain businesses.
Delphi has diverted more of its spending away from traditional components into high-tech applications geared for next-generation vehicles. Last month, Delphi invested in a trio of high-tech startups to bolster its ability to harness diagnostic and other data in vehicles and provide a more interactive experience for drivers, as well as open potential avenues to market services to drivers.
Delphi's engine, or powertrain, business has long been at the core of the company, which itself was spun off from General Motors Co. in 1999. The new powertrain company will focus on boosting performance of standard gasoline engines and developing new engine technologies. It will be run by a new management team led by two veteran Delphi executives.
Mr. Clark said the company is reviewing the names of both the spinoff and the remaining business, hinting one or both might abandon the iconic Delphi name.
The combined company also reported Wednesday that first-quarter net income from continuing operations rose 4.5% to $335 million, or $1.24 a share, from the year-ago period. Its revenue increased 6% to $4.3 billion.
Write to Chester Dawson at email@example.com
(END) Dow Jones Newswires
May 03, 2017 11:15 ET (15:15 GMT)