Wabco (WBC) 9th-Inning Takeover Withdrawal Has Rumor Mill Buzzing

It's been several days and the market is still scratching its head about the identity of the suitor that bolted from Wabco (NYSE: WBC) in the 9th inning. The rumor mill is not only questioning the reason the suitor pulled out of the potential $8+ billion acquisition, but what this means going forward.

Buried with its earnings report last week, Wabco disclosed that during the quarter it received a takeover offer and engaged in advanced discussions with a suitor. Although due diligence was satisfactorily concluded, final approval was not granted by the buyer's board and discussions terminated.

On the call, Wabco CEO said the discussions were terminated "for reasons that are absolutely unknown to us."

While many on Wall Street have ignored the story, the news was not lost on analysts that cover the stock.

William Blair analyst Lawrence De Maria speculated that the possible suitor was an "industrial strategic that could extract synergies to make the financials attractive given Wabco’s EBITDA multiple (13 times our 2017 estimate) or possibly a technology company that would integrate into Wabco systems for autonomy, digitization, and possibly electrification."

While the potential acquirer has moved on, they have long believed that Wabco would be an interesting candidate for consolidation given its technology, operating profile, and long-term favorable trends. De Maria views the potential deal as providing support for the stock.

Stifel analyst Michael Baudendistel theorized that perhaps the buyers' board rejected the deal due to a high valuation multiple. "The acquirer’s management, however, may have felt such a valuation was justified due to the many attractive end markets that WABCO is in, such as vehicle safety and automation products, and because the deal would have likely diversified the acquirer’s business," he added.

Citi's Timothy Thein said the news suggests to them that Wabco could be a willing seller at the right price.

Deutsche Bank's Nicole DeBlase also raised questions about Wabco's reasons for coming clean. She asks "are they trying to send the message that WBC is a willing target?"

Potential suitors for Wabco are seen as Cummins (NYSE: CMI), Eaton (NYSE: ETN), ZF Friedrichshafen AG and Continental AG. Cummins, Eaton and ZF said they don't comment on rumors, while Continental has not returned a request to comment. Notably, Cummings and Eaton have a joint venture for automated transmissions for heavy-duty and medium-duty commercial vehicles. Meanwhile, WABCO rival Knorr-Bremse is engaged with a antitrust battle in the EU to gain control over Swedish truck-brakes maker Haldex AB, so would not be seen as a suitor for Wabco.

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