Westport and Fuel Systems Solutions Announce Merger

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Today's Trucking / September 1, 2015

Westport Innovations Inc. and Fuel Systems Solutions Inc. on Tuesday jointly announced the companies have entered into a merger agreement to create an alternative fuel vehicle and engine company.

Under the terms of the agreement, Westport will acquire all of the outstanding shares of Fuel Systems common stock in a stock-for-stock transaction at a 10 percent premium. Following the closing, existing Westport shareholders will hold approximately 64 percent of the combined company and Fuel Systems shareholders 36 percent of the combined company.

The move comes after the two companies combined lost US$43.7 million in the first half of 2015, according to Transport Topics newspaper. Westport has a publicly stated goal of reaching break even by the middle of 2016 and the merger would only strengthen the company's ability to meet this goal, said a news release.

The transaction is subject to regulatory approvals as well as approval of both Fuel Systems and Westport's shareholders. To date, shareholders owning 34 percent of Fuel Systems and 15 percent of Westport outstanding shares have each agreed to vote in favor of the merger. The companies' respective boards of directors have unanimously approved this transaction.

The companies anticipate closing the transaction in the fourth quarter of 2015. Westport and Fuel Systems will operate as separate companies until that time.

Traditionally, Westport has focused the majority of its technological development and commercialization efforts in the heavy-duty and high horsepower arena, while Fuel Systems has experience and focus in the light- and medium-duty products for automotive and industrial applications.

Fuel Systems brings long standing relationships with several key global OEMs, including General Motors, Ford, Nissan, Kia, Subaru and Mitsubishi, according to the companies. Westport has key relationships with complementary global OEMs, including Volvo Car Group, Volkswagen, Fiat Chrysler, Tata Motors, GAZ Group, Paccar, Daimler AG, Cummins, Ford and Volvo AB.

Upon closing, the combined company will trade on both the Toronto Stock Exchange and Nasdaq under the Westport Fuel Systems name and be headquartered in Vancouver, BC, with a new business unit called Fuel Systems Automotive and Industrial Group. This new unit will represent the combination of Fuel Systems with Westport's operations unit; its automotive division will be headquartered in Cherasco, Italy, and its industrial division will be headquartered in Santa Ana, CA.

The transaction will result in a combined equity value of US$351 million based on the closing trading prices for the shares of both companies on Aug. 31 and combined annual revenues ranging from US$380 to US$405 million projected for 2015, according to the companies.

"The merger of these two organizations, both rich in technology innovation and with proven track records of manufacturing, production and sales, will provide greater breadth of alternative fuel systems solutions as products and development engineering to OEM partners globally," said David Demers, CEO of Westport. "We expect that the increased scale of products and consolidation of facilities will produce both cost-efficiencies and enhanced products, ultimately creating value for all our customers and our shareholders. This transaction marks a milestone in our strategic plans, whereby Westport will realize increased sales and significant cost efficiency opportunities while continuing to focus on the development, validation and launch of its proprietary Westport HPDI 2.0 and enhanced spark ignition technology."

Demers and the rest of the Westport executive team will lead the combined company, while Mariano Costamagna, who is retiring as CEO of Fuel Systems, will serve in a senior advisory position of the company's new business unit with additional titles in the organization to be determined at a later date. Top talent across the combined organization will be evaluated and retained based on the organization's new structure, according to the companies.

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Westport, Fuel Systems Announce Merger

Transport Topics / September 1, 2015

Westport Innovations Inc. and Fuel Systems Solutions Inc., suppliers of technology for natural gas-powered trucks, agreed on a merger valued at $351 million to capitalize on opportunities when alternative fuel markets improve.

The combination of Westport, based in Vancouver, British Columbia, and New York-based Fuel Systems Solutions is structured as a stock swap for two money-losing companies whose annual revenue could reach $405 million this year.

The announcement comes as expected sales of natural gas-powered heavy trucks for on-highway applications are expected to fall about 6% to around 3,300 this year compared with 2014, according to ACT Research, which tied the 2015 activity in the alternative-fuel sector to a sharp drop in diesel prices.

That change lengthened the payback period for natural-gas trucks, which account for barely 1% of all heavy truck sales, well below past projections when diesel was at or near record levels.

“We expect that the increased scale of products and consolidation of facilities will produce both cost efficiencies and enhanced products, ultimately creating value for all our customers and our shareholders,” Westport CEO David Demers said.

In the first half of this year, Westport and Fuel Systems lost a combined $43.7 million.

“Westport has a publicly stated goal of reaching break even by the middle of 2016, and the merger would only strengthen the company's ability to meet this goal,” the statement said.

Fuel Systems CEO Mariano Costamagna said, “Bringing together these two premier companies in alternative-fuel technology combines our technology expertise and long-standing relationships with global OEMs, our strong shared focus on improving profitability and aligns our corporate cultures, creating an ideal fit.”

The transaction includes a new business unit known as Fuel Systems Automotive and Industrial Group. The statement said there are 17 brands marketed in more than 70 countries through the combined businesses.

Fuel Systems holders will receive 2.129 Westport shares for each Fuel Systems share owned, worth about $7.54 per share. Westport shareholders will have a 64% stake in the company.

A fourth-quarter 2015 completion is expected.

The companies estimated $30 million of annual savings by 2018.

Demers will head the newly formed company, and Costamagna will serve as a senior advisor while also retiring.