Torotrak sells stake to rival in major agreement
TRANSMISSION specialist Torotrak has been given £2.4m for a 10% stake in the business by US company Allison Transmission, as part of a huge license agreement.
The deal, which makes Allison the Leyland-based company’s largest shareholder with 14,608,290, also includes a licence and exclusivity agreement.
Under the agreement, Allison has bought initial licence rights for £8.44m of which £4.69m has already been paid, and a further £3.75m will be paid in 2010.
Total additional fees could amount to a further £6.75m to £17.37m, payable to Torotrak over the next four years.
The initial licence payment gives Allison a non-exclusive licence to use Torotrak’s full-toroidal traction drive technology in medium-sized commercial vehicles, with options to secure global manufacturing and sales exclusivity in this sector and the right to secure further licences for applications in large commercial vehicles at a later date.
One volume production begins, a royalty per transmission unit and service part will be payable to Torotrak.
Torotrak said it will focus its technical expertise on transferring skills and knowledge to Allison to help it achieve volume production in the shortest possible time.
Dick Elsy, Torotrak’s chief executive, said: “This is the most significant endorsement of our technology thus far. Allison is the world leader in commercial vehicle transmissions and the agreement provides us with access to large production volumes in this high value sector.
“The value we have secured through this agreement with Allison will be realised over both the short term, through licence fees, and the longer term, as the visibility of high volume royalties becomes clearer.”
Torotrak said the impact of the agreement on the current financial year to the end of March 2009, will mean that cash balances and operating cash flow will be substantially improved compared to market expectations.
It added that operating cash flow would be positive for the second year running but that revenue and loss before tax would be in line with market expectations because revenue from the initial licence payment will be more heavily weighted towards the next financial year.
Law firm Hammonds in Manchester advised Torotrak on the licence and exclusivity agreement, led by corporate partner Jane Haxby, senior corporate associate Andrew Millar and commercial partner Peter Donaldson. Torotrak was also advised by Richard Pulford from the Manchester office of Close Brothers and Arbuthnot Securities.
