Cummins Inc (CMI.N), a U.S. manufacturer of engines for large trucks, is preparing to explore the sale of a business that makes filters and coolants, potentially valuing it at more than $1.5 billion, according to people familiar with the matter.
The move comes as weak heavy-duty truck production in North America and poor global demand for power generation equipment have hit the company's profits. However, filtration businesses are still seen as financially resilient.
Earlier on Thursday, Parker-Hannifin Corp (PH.N), which makes motion and control systems for the industrial and aerospace markets, said it would buy air filtration system maker Clarcor Inc (CLC.N) for about $4.3 billion, including debt.
Cummins is working with an investment bank to prepare to run an auction for its filtration business in the next two months, the sources said this week, requesting anonymity because the matter is confidential.
A Cummins spokeswoman declined to comment.
Cummins' filtration business offers more than 8,300 products, including air, fuel, lube and hydraulic filters, as well as fuel water separators, coolants and fuel additives.
The potential sale also comes after German industrial filter maker Mann + Hummel completed its acquisition of U.S. peer Affinia last May to boost its annual sales by $1 billion, or more than a third, and gain access to the U.S. market for heavy-duty and hydraulic filters.
Truck makers have experienced a drop in sales this year as lackluster economic growth and high retail inventories have discouraged many trucking companies from putting in orders for new vehicles.
Based in Columbus, Indiana, Cummins makes diesel and natural gas engines and engine-related component products for the truck and industrial markets. It earned $1.4 billion last year on sales of $19.1 billion.
Last month, Cummins reiterated its downbeat full-year revenue forecast and said quarterly sales in its engine unit were down 12 percent from a year earlier.
(Reporting by Greg Roumeliotis in New York; Editing by Lisa Von Ahn)