Cummins Inc, a company based in the United States, announced on Tuesday that it will purchase Meritor Inc for $2.58 billion to expand its electric and hybrid vehicle parts offerings owing to a boost in climate-friendly transportation.
Automobile manufacturers are planning to electrify gasoline models or introduce electric cars and trucks due to rising demand for electric vehicles.
Cummins, whose customers include PACCAR, Navistar, and Daimler, said it intends to increase Meritor's investment in electrification and integrate with its own segment that makes electrified power systems.
Meritor shares rose 43% at $35.50 before the bell and were set to open at a new high if the gains were held. Cummins shares rose 1.4 percent.
Meritor, which also manufactures axle and brake technology, will be added to the Indiana-based company's 'powertrain' business. A powertrain is a form of a line of every element that pushes a vehicle forward.
The firm claims that the merger would result in a pre-tax increase of approximately $130 million in the third year after its conclusion.
Cummins' offer of $36.50 per Meritor share represents a premium of 48% till Friday's closing.
The company said it would pay for the acquisition, which is valued at $3.7 billion on an enterprise basis, owing to money and debt.