* Tenneco to pay $800 mln in cash, 29.5 mln shares
* To assume Federal-Mogul's debt
* Co to separate businesses into independent, publicly traded cos
* Tenneco shares up 5.8 pct, Icahn Enterprises up 2.7 pct (Adds Breakingviews link)
By Arunima Banerjee
April 10 (Reuters) - Activist investor Carl Icahn said on Tuesday he was selling auto parts maker Federal-Mogul to Tenneco Inc in a $5.4 billion deal, unloading an investment he has held for nearly two decades and picking up a new stake in Tenneco.
Tenneco plans to separate into two independent, publicly traded companies - one focusing on powertrain products and the other on auto parts such as suspensions and axle dampers - after the deal closes.
The new bulked up powertrain technology company will likely benefit from the fact that internal combustion engine parts and tailpipe exhaust scrubbing technology will be needed by automakers for a long time to come, before they can be replaced by newer technologies such as fully electric cars.
The aftermarket parts company would provide a potentially steady cash flow.
This is the latest in a series of corporate restructurings or spinoffs in the auto supplier industry, as investors press for more focused companies. See Breakingviews:
B. Riley analyst Christopher Van Horn said the Federal-Mogul deal could drive expectations of more consolidation in the sector.
Tenneco's shares rose 5.8 percent to $58.78, while Icahn Enterprises' shares were up 2.7 percent at $61.29.
"Going to market with well-recognized brands, more product categories, greater coverage and expanded distribution capabilities is a strong formula for capturing growth, particularly in China," Tenneco Executive Chairman Gregg Sherrill said on the call.
Icahn Enterprises will get $800 million cash and 29.5 million of Tenneco common shares in the deal.
The equity value of the deal is $2.4 billion. Federal-Mogul, which makes powertrain parts including pistons, ignition coils and spark plugs, had gross debt of $3.1 billion.
It was not clear if Icahn would hold stakes in the separate companies.
He first bought convertible bonds in Federal-Mogul in 2001 for $1.1 billion, and finally took it private last year after buying the remaining 18 percent he did not already own.
Icahn's firm Icahn Enterprises typically buys undervalued assets, improves their operations, and ultimately sells them at a profit.
"We expect to be meaningful stockholders of Tenneco going forward," Icahn said in a statement.
The deal is expected to generate $200 million in annual earnings and $250 million in working capital.
Lake Forest, Illinois-based Tenneco, whose customers include Caterpillar Inc, Harley-Davidson Inc and Ford Motor Co, would now also get Cummins Inc and luxury carmaker Jaguar as clients.
Barclays was the lead financial adviser to Tenneco, while J.P.Morgan was the M&A adviser.
Reporting by Arunima Banerjee and Ankit Ajmera in Bengaluru, Additional reporting by Joe White, Editing by Saumyadeb Chakrabarty and Arun Koyyur