<A>: Yeah Joe, this is Mike Simonte. One of the other things that’s going to happened during this time period and David mentioned in his script and so did George, I think very prominently. The two companies have a strong backlog of business that pre-exists, this combination, and so those new business awards will be launching in this time period as well. And so the combination of the cash synergies that Chris just mentioned plus the higher contribution from new business launching in this time period is really the bridge you need to get you to that 2019 number you referenced.
<Q - Joseph Spak>: Okay. Perfect. So that definitely is the growth side and then just to be clear, when you said potentially generate 1.2 EBITDA and 400, that’s today as is combined plus the synergies and then...
<A>: [indiscernible]
<Q - Joseph Spak>: ...the growth on top of that? Okay.
<A>: Yeah. [indiscernible]
<Q - Joseph Spak>: Okay.
<A>: Plus the growth on top of this we go forward over the next several years that Mike has highlighted as well.
<Q - Joseph Spak>: Okay. Then just on synergies, MPG just went through a fairly heavy integration and assuming there were some efficiencies gained there so just wanted to know if you still think there is more even in standalone MPG?
And then you also went through MPG to came to other maybe two years ago, right, so – and when you came together with the combined go-to-market strategy and now there’s going to be a sort of a new combined go-to-market strategy, what lessons were really learned during that initial shift and how long do you think that it’s going to take for the total higher content from AAM and MPG like a one plus one equals to three, if you will to really come to fruition?
<A>: Joe, this is David. Let me start first and if George wants to add any comments, he can. First and foremost, I mean, both organizations run a disciplined ship. But at the same time there’s clearly – synergistic opportunities between the two companies coming together on our overhead and operating type structure from an organization standpoint especially when you look at some of the redundant public cost that that exists there. We are going to clean sheet in both organizations and develop that streamline structure along with the appropriate cost systems to support that structure going forward.
So, I think that’s there the sizable part that’ll be done in that area there but again picking that strong and integrated management team to lead the joint organization or the combined entity, you’re moving forward. We’re both known for our operational excellence so – but any time you’re going to a factory, there’s always opportunity and that’s how both of us look at it. So, we’ll continue to build on the success that we’ve had but we definitely think there may be other opportunities in that respect and then we’re going to utilize, like I said before, our opportunities both on the indirect and the direct side of the business, and from a purchasing standpoint, with the supply base and our supplier partners there. But listen, they have done a great job, integrating three companies into one MPG. I think we’ve done a very good job in regards to building our business up over the years, and collectively together this senior management team is going to put a formal organization together, that is going to be able to deliver on the synergies and as we said earlier, we can deliver on those synergies within the two years at 70% run rate after the first year. So, we feel pretty good about where we are in that.
<A>: Yeah, really, and David covered this in the prepared remarks, and we’ve been working together here for a while, so this covered – public company cost, the redundance, so even though MPG had integrated, there are still costs that can come out of the system, and we still can buy vertical integration opportunities, we still can buy factory utilization and optimization, including best practices, which we shouldn’t take lightly, and then of course, we’ve got the lessons learned of things going right, things going wrong, fortunately I felt our integration of the three legacy $1 billion companies went really well, and so we can extrapolate that here in this situation.
I would say, yeah the cost saving takes a little bit of time to get a little bit momentum, so it might take just a few quarters to get that going. You can see the results, we brought together the three legacy companies to create MPG back in 2014, and you can see the programs that we’re winning and booking are gaining momentum. They are larger in scale, scope and they are global. And so totally works – it totally worked, as we had set out to do, and I would imagine, we’ll have some of the same successes here in the coming 12 months to 24 months.
Company Name: American Axle & Mfg. Company Ticker: AXL US Date: 2016-11-03 Event Description: Q3 2016 Earnings Call - Acquisition of MPG by American Axle & Manufacturing Holdings, Inc. Call | Market Cap: 1,076.35 Current PX: 14.08 YTD Change($): -4.86 YTD Change(%): -25.660 | Bloomberg Estimates - EPS Current Quarter: 0.699 Current Year: 3.140 Bloomberg Estimates – Sales Current Quarter: 975.875 Current Year: 3987.111 |
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<A>: Yeah I think as I also indicated, we think there is opportunities for CapEx avoidance when you look at our capacity and also you look at our facility utilization.
We think there might be some opportunities as it relates to tax structure and what we can do in that respect, with certain jurisdictions and then obviously when you bring the size and scale of the company here, we think there is some working capital opportunities on top of that. So but again some of that will be used to offset some of the expenses implement, some of the synergies that we mentioned earlier, but as we’ve communicated we see a range of $100 million to $120 million from a synergistic standpoint, which makes us accretive in the first full year after our ownership.
<Q>: That’s helpful. Real quick, you mentioned reduction on full size trucks. Do you have any pro forma estimate of – between – of the mix between passenger cars, crossovers and full size trucks?
<A>: Yeah. We haven’t really put all that together at this point in time. I mean, the big thing that we want to communicate is that where driveline product makes up, significant part of AAM’s business today that reduces to less than half at the same time our dependence on – the GM or the full size truck business, GM specifically is very strong today and will go down based on the combined entity coming together here. So we feel very good and with respect to the diversification we’re going to have not only in our portfolio, but the end markets we’re going to serve and the customer mix as well. So the – one of the critical things for us in this whole thing was the diversification aspect of the combined entity.
<Q>: Thanks. Congrats, again.
<A>: Yeah. Thank you.
<A>: Thank you.
Operator
Your last question comes from the line of Justine Fisher with Goldman Sachs. Your line is open.
<Q - Justine Fisher>: Hi good morning.
<A>: Good morning.
<A>: Good morning.
<Q - Justine Fisher>: The first question I have is just on the rating agencies. Have you guys heard anything from them, on this I know that this should upgraded you guys a couple of months ago. And so any preliminary feedback from them?
<A>: We had some preliminary dialogue yesterday too, and we’ll have further dialogue with them today. We’ll obviously, hopefully, they will recognize that the benefits of this transaction in terms of the de-risking of the company form a size and scale perspective, the power of our earnings as well with our cash flow, but obviously put that in context of the debt real issues. So, we’ll continue those dialogues on an ongoing basis, going forward.
<Q>: Okay. And then, maybe too early to answer this, but I’m just looking at the metal buying capital structure, and the bondholders have a change of control that obviously that’s the bond will exercise, but on the loan side, I would assume that, that loan would be refinanced as part of a broader loan deal that would you be guys a lot of pre-payable debt that you could use it to repay and therefore de-lever. So any preliminary thoughts what you guys do with metal buying loan?
<A>: As it relates to the term loan, yes, we would replace that.
Company Name: American Axle & Mfg. Company Ticker: AXL US Date: 2016-11-03 Event Description: Q3 2016 Earnings Call - Acquisition of MPG by American Axle & Manufacturing Holdings, Inc. Call | Market Cap: 1,076.35 Current PX: 14.08 YTD Change($): -4.86 YTD Change(%): -25.660 | Bloomberg Estimates - EPS Current Quarter: 0.699 Current Year: 3.140 Bloomberg Estimates – Sales Current Quarter: 975.875 Current Year: 3987.111 |
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<Q>: Okay. And then, the last question is just following up about some of the ones that you guys have already been asked it. If we aggregate the estimated free cash flow numbers between now and 2019, it definitely seems that you could repay the $1 billion to $1.5 billion of debt that you need to, to get leverage to two times. But there isn’t a huge amount of room for error. And depending on what happens with SAR et cetera, there is obviously flexibility around those four cash flow numbers. So, my question is how committed the company is to hitting that two times numbers and if it turns out that we have some market deterioration that makes that free cash flow elusive, would the company be willing to issue equity or kind of take bigger steps to ensure that the leverage goes down to two times? Or would you just say look or maybe it’s going to be 2.5 time, 3 times because the market is weaker?
<A - David C. Dauch>: Justin, it’s David. Let me just say this. Yes. Absolutely, we’re committed just to supporting, meeting and managing the balance sheet and debt side of things. If you just go back and look at our track record from 2009 to 2016, we were well over three times levered, and we had a commission to get down to 1.5 times by the end of this year and we’re clearly on that trajectory to do that and then those that have followed us over the years understand that, when we make a commitment to something that we deliver on those commitments. So I don’t expect to do anything different here and if anything we’re going to try to accelerate it.
<Q>: Great. Thanks so much. Congrats on the transaction.
<A>: Thank you.
<A>: Thank you.
Operator
There are no further questions at this time. I would now like to turn the call back over to Mr. Parsons.
Jason P. Parsons
Thank you, [ph] Jack. And we thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future.
Operator
This concludes today’s conference call. You may now disconnect.
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