(photo courtesy of Cummins)

Columbus-based Cummins Inc. (NYSE: CMI) says it has entered into an agreement to acquire Meritor Inc. (NYSE: MTOR) in Michigan in a deal valued at $3.7 billion. Meritor is a supplier of drivetrain, mobility, braking, aftermarket and electric powertrain products for the commercial vehicle and industrial markets. Cummins CEO Tom Linebarger calls the acquisition an important milestone for the company as it works to develop more zero carbon products.

During a media conference call this morning, Linebarger said the deal accelerates Cummins’ ability to address climate change.

“Our customers need economically-viable zero carbon solutions for commercial vehicle and industrial applications,” said Linebarger. “Decarbonization is a global imperative and a growth opportunity for Cummins and Meritor together. The acquisition of Meritor is a unique opportunity to build out our capabilities in the transition and to provide alternative propulsion in a scalable and financially disciplined manner.”

Meritor, which has been in business for more than 110 years, employs more than 9,600 people around the world. Linebarger says acquiring Meritor fit Cummins’ strategy to find ways to grow in its core business by adding components that could be used within its footprint, such as eAxles.

“What we add is, in addition to the overall system, the brains of the operation and the battery, we now bring the eAxle and traction section to the electric powertrain,” he said. “That allows Cummins to think about whole systems and components much in the same way as we’ve been thinking about it from an engine point of view. We can provide now to OEMs a full range.”

Linebarger says through the acquisition, Cummins expects to accelerate growth in two of Meritor’s key businesses and create additional synergies.

“We think Meritor’s traditional core axle and brake business fits into our components business well,” he said. “We have strong footprints, both of us, but Cummins is in some places that Meritor isn’t and in bigger ways, and we think by bringing Meritor into the places we are, that we can grow their core business. And, of course, our components business more powertrain agnostic over time, providing us a more sustainable source of revenue and profit over a longer period of time.”

Additionally, Linebarger says the cultures of the two companies are very similar and operating the two companies will come at a lower cost.

The Meritor Board of Directors has unanimously approved the acquisition. The deal remains subject to regulatory and Meritor shareholder approvals, as well as customary closing conditions.

“The two companies are largely complementary,” said Linebarger. “Almost everything that Meritor’s been working on, Cummins has not been working on and vice versa. And, the two companies are going to combine investments to provide much more economically-viable solutions.”

The acquisition is expected to close by the end of the year.