U.S. auto components firm BorgWarner threatened to abandon a $951 million offer to acquire Delphi Technologies Tuesday after the automotive tools provider drew down on a credit line without its acquirer’s clearance.
Delphi tapped its $500 million revolving credit facility to help it weather the blow from the coronavirus pandemic, the company mentioned in a statement. BorgWarner stated the move violated their deal terms and gave Delphi 30 days to resolve the issue.
Delphi responded that BorgWarner had “unreasonably withheld its consent,” however, it added it intended to negotiate to find a solution. The companies declared heir deal in January and stated at the time they anticipated it to conclude in the second half of 2020.
Delphi shares ended trading Tuesday in New York down 22% at $8.05, a steep discount to the $11.04 a share in BorgWarner stock that Delphi shareholders would stand to receive, reflecting investor concerns that the deal can be not be completed.
BorgWarner’s threat further sent ripples across the corporate sector, as dealmakers pondered whether other firms would cite the usage of credit lines in the light of the coronavirus pandemic as grounds for walking away from acquisitions they’d otherwise be contractually obligated to complete.
Merger agreements typically permit a buyer to abandon offers only if they can show that a calamity has disproportionally impacted the acquisition target compared to its peers in the period between signing and concluding.