American Axle & Manufacturing (AXL, Financials) has reached an agreement to acquire Dowlais Group in a $1.44 billion cash-and-stock deal, the companies announced Wednesday.

• Warning! GuruFocus has detected 5 Warning Signs with AXL.

Combining internal combustion engine, hybrid, and electric vehicle categories will provide a worldwide driveline and metal-forming supplier with a varied client base.

Under the deal, Dowlais owners will get 0.0863 new AAM stock, 42 pence per share in cash, and up to a 2.8 penny final dividend for fiscal year 2024. After the acquisition is complete, Dowlais stockholders will possess 49%; AAM owners would hold about 51% of the merged company.

Using the Jan. 28 closing share price of AAM and the GBP/USD exchange rate, the deal values Dowlais at around 1.16 billion on a fully diluted basis. This is a 25% premium to Dowlais' Jan. 28 closing share price and a 45% premium to its volume-weighted average price over the last three months.

AAM anticipates the combination to be substantially accretive to profits in the first full year following completion and to provide yearly cost synergies of around $300 million. Furthermore projected to improve cash flow and hasten debt reduction is the acquisition.

Under the transaction, David C. Dauch, AAM Chairman and CEO, will oversee the merged firm from Detroit. Along with four Dowlais executives filling the leadership team, two independent directors from Dowlais, Simon Mackenzie Smith and Fiona MacAulay, will join AAM's board.

Though AAM has the ability to seek an alternative takeover structure, the acquisition will be carried out via a court-approved plan of arrangement under Part 26 of the UK Companies Act 2006. Expected to conclude by the end of 2025, the agreement is still subject to shareholder and regulatory approval.

Once completed, AAM will keep trading under the ticker "AXL" on the New York Stock Exchange. Applications will be filed to delist Dowlais shares from the UK Official List and London Stock Exchange.

AAM gave early unaudited financial predictions for fiscal year 2024, projecting revenues between $6.10 billion and $6.15 billion, adjusted EBITDA between $740 million and $750 million, and adjusted free cash flow in the range of $220 million to $230 million.