Cummins signals IPO for filtration business

Cummins Inc. has taken a step forward in what analysts say indicates the company plans to separate its filtration business into a standalone company.

The company announced Thursday that its filtration business has confidentially filed paperwork for a proposed initial public offering with the U.S. Securities and Exchange Commission. This is a step that companies take before publicly filing IPO paperwork with regulators.

Currently, the timing for the filtration business’ IPO is unclear, but the company said in the regulatory filing that it “is expected to commence after the completion of the SEC review process, subject to market and other conditions.”

An IPO is when a company’s stocks are sold publicly for the first time. IPOs are generally underwritten by investment banks that arrange for the shares to be traded on a stock exchange.

In this case, Cummins would be “essentially selling stock in the filtration business to new investors through the public market,” said Roger Lee, senior research analyst with Columbus-based Kirr, Marbach and Co.

“They’re going through the motions, as any company would have to if they were going public,” Lee said.

In August, Cummins announced plans to explore “strategic alternatives” for its filtration business, including potentially spinning it off into a separate company or selling it altogether.

The business, headquartered in Nashville, Tennessee, was founded in 1958 as the Seymour Filter Co., and designs, manufactures and sells air, fuel, hydraulic and lube filtration, as well as chemical technology products for diesel and gas-powered equipment around the world, according to its website.

Cummins Filtration employs around 4,000 people worldwide, corporate spokesman Jon Mills said last year.

Last year, Cummins Chairman and CEO Tom Linebarger told financial analysts that the company was exploring “a range of options” for the business unit, telling financial analysts that “the business is doing great” but “we just think it can operate separately from us more effectively going forward.”

The filtration business accounted for about $1.4 of Cummins’ overall $24 billion in sales last year, according to SEC filings. That was an increase from $1.2 billion in 2020. Currently, the filtration business is listed under Cummins’ components segment.

Lee said an IPO likely signals that Cummins “has confidence that the business is very strong” because “typically, if you’re taking a company public, there’s going to be uncertainty as to what the market is willing to pay for it.”

Mills said Thursday that the company did not have an estimated timetable for the IPO. However, Lee said the length of the IPO process can depend on a variety of factors but expects that the company will reveal more about its plans for the filtration during its upcoming quarterly earnings conference call and annual meeting in early May.

In its 2021 annual report, Cummins said it “believes the separation will create value for both companies by enabling enhanced focus on key strategic initiatives, continued innovation in core and new technologies for Cummins and greater focus and operating flexibility for the filtration business.”

“The method and timing of the separation are under evaluation,” the company stated in the annual report.