Tenneco (NYSE:TEN) has been a challenging situation for some time, as the company’s original plan from 2018 to acquire Federal Mogul and then split the company could never be executed due to weak margins and untenably high leverage. Management has since been executing on a turnaround program targeting over a quarter of the business, but the pandemic’s disruption to vehicle builds and the more recent spike in supply chain costs have done the company no favors.
Now the execution risk of that turnaround and deleveraging plan is off the table, with Apollo Global Management (NYSE:APO) agreeing to pay $20/share for the company.
Given the high level of debt and the uncertainties of modeling the turnaround, the valuation of Tenneco’s shares has always been highly sensitive to even relatively tiny modeling changes. So while $20/share is nearly spot on with one of my fair value calculations (my last article on the company is here), I can’t argue too much with shareholders who think that they’re not getting the full upside from Tenneco’s long-term plan.
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