UPDATE 2-Federal-Mogul to separate motorparts, powertrain businesses

Wed Sep 3, 2014 1:41pm EDT

(Adds analyst comment, updates share price)

By Mridhula Raghavan

Sept 3 (Reuters) - Federal-Mogul Holdings Corp, controlled by billionaire investor Carl Icahn, said it would separate its motorparts and powertrain businesses into two publicly traded companies.

The Southfield, Michigan-based supplier said the separation of the motorparts business, which largely caters to the replacement market, will be in the form of a tax-free spinoff to Federal-Mogul's shareholders.

Icahn, known for his push to split companies, took control of Federal-Mogul when the company emerged from bankruptcy in 2007.

Sources said in March 2011 that Icahn was trying to sell the company, but the activist investor did not confirm the news. (reut.rs/1roRDwk)

"Upon separation, both businesses will be well-capitalized and poised for standalone success," Chairman Icahn said in a statement on Wednesday.

Icahn Associates Corp held about 80 percent of Federal-Mogul as of June 30.

The company's aftermarket motorparts business, smaller of the two, has been underperforming its powertrain business, which makes engine bearings, pistons and transmission products.

The motorparts business booked revenue of $2.93 billion in 2013, while the powertrain had revenue of $4.17 billion.

Analyst Brian Sponheimer of Gabelli & Co said the spin-off could attract buyers for the company's main powertrain business.

"I think one of the reasons why the company is engaging in a tax-free spin is because the powertrains business, in my opinion, would be an highly attractive candidate for an acquisition," Sponheimer said.

Sponheimer named BorgWarner Inc, Continental AG and Delphi Automotive Plc as potential suitors.

BorgWarner Chief Executive James Verrier during an earnings call in July said the auto-parts maker's acquisitions will generally be in technology in the powertrain area.

None of the three companies responded to emails seeking comment.

The spin off is expected to be completed in the first half of 2015.

Federal-Mogul shares were 2.5 percent higher at $17.70 in early afternoon trading on the Nasdaq on Wednesday. The shares had fallen 12 percent since the start of the year to Tuesday's close. (Editing by Sriraj Kalluvila and Maju Samuel)