Dana enters the third quarter of the current year as a company that has quietly executed two of the largest strategic transactions of its public history in a single year. The Off-Highway business sold to Allison Transmission closed at the start of the calendar year, delivering a cash proceeds figure of just over $2.6 billion that immediately retired the Term A term loan, the revolving borrowings, and a large block of senior notes across several tranches. The company is a power-conveyance supplier to on-highway vehicle makers, and the transaction changes what the stock actually represents. Days later, in mid-June, the company announced a Reverse Morris Trust combination with Eaton's Vehicle and eMobility business, in which former Dana holders end up with just under half of the combined entity. The combination is expected to close in the first quarter of next year.
The second-quarter numbers provide a useful data point for the standalone story. Revenue grew at roughly 4% year over year, with the organic component driven by price and cost-recovery actions rather than volume, since North American heavy-truck production fell at double digits. Gross margin expanded by more than three percentage points, helped by incremental cost-reduction savings and material cost savings that more than offset commodity cost increases and higher electrification spend. The quarter's adjusted EBITDA landed near the midpoint of the revised full-year guidance, which implies a margin of about 10.6% at midpoint, a 250 basis point improvement over the prior-year run rate.
The central debate is valuation. Dana trades at roughly 4x a multiple of guided full-year adjusted EBITDA, a level well below the mid-single-digit multiples that Eaton commands. The market appears to be applying a discount that reflects three things at once: the cyclical softness in North American heavy truck production, the uncertainty of the Reverse Morris Trust mechanics, and the question of whether the combined entity's margin profile supports a re-rating. What would make the market wrong is a post-merger adjusted EBITDA run rate at or above the guided midpoint with leverage below 2x, which would put the standalone entity in the neighborhood of 7x to 8x on normalized earnings, a level that the current multiple does not clearly price in.