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August 15, 2005 12:00 AM

Lear eyes Collins & Aikman bid

Utech Staff
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    By Robert Sherefkin and Greg Bowens, Automotive News

    Detroit, Michigan -- In a move that could create a powerhouse in the cutthroat automotive interiors business, Lear Corp. is considering a bid for bankrupt Collins & Aikman Corp.

    Last week, sources close to Lear confirmed that the supplier is studying a possible bid for Collins & Aikman. The sources said Lear might buy part or all of Collins & Aikman.

    A Lear bid would be surprising in light of a senior executive's prior statement that Lear would focus on seats and electronics. Lear of Southfield, Mich., has suffered from the rising cost of raw materials and production cuts by General Motors and Ford Motor Co., its major customers.

    In a conference call with analysts last month, Lear COO Doug DelGrosso complained that the company struggled to make a profit on interior trim. Investors thought he was hinting that Lear might dump that business.

    But DelGrosso actually hinted that Lear could continue to produce interior trim. "We are exploring various strategic options," he said at the time.

    Analysts say the acquisition of Collins & Aikman could give Lear economies of scale. Collins & Aikman of Troy, Mich., makes cockpit modules, instrument panels, flooring, and acoustic systems and trim. Lear makes many of the same products.

    Weighed down by a tangle of unprofitable contracts, Collins & Aikman filed for bankruptcy court protection on May 17.

    But its status as one of North America's largest interiors suppliers makes it too important to fail. Last week, automakers earmarked $200 million to keep Collins & Aikman in business through September.

    Lear is not the only company eyeing Collins & Aikman. On Monday, Aug. 8, Plastech Engineered Products Inc. of Dearborn, Mich., announced its intention to buy Collins & Aikman for up to $1 billion. But Collins & Aikman has virtually ignored Plastech's offer. Collins & Aikman executives say they are focused on their company's Chapter 11 reorganization.

    "It wasn't even really an offer," said Collins & Aikman spokesman David Youngman. "It was an offer to make an offer after they have done their due diligence."

    Undaunted, Plastech continues to pursue Collins & Aikman. "They're strategic" to Plastech, said a source familiar with Plastech's strategy. Plastech has "been trying to get into instrument panels and doors for a while. Collins & Aikman does instrument panels and doors, so that would be core" to Plastech.

    The source said Plastech was approached by an automaker he declined to identify and encouraged to make a bid for Collins & Aikman, a move seen as evidence of just how important Collins & Aikman is to the automotive industry.

    "Some interested people in this process approached Plastech because they don't see Collins as a longtime viable entity," the source said. "That's why they are doing it. Not just for the fun of it. They think having Collins & Aikman is good for them in the long term. (But) it is just a huge, huge challenge."

    Behemoth

    Lear can afford to buy Collins & Aikman. With North American original-equipment parts sales of $9.28 billion in 2004, Lear ranks No. 5 on the Automotive News list of the top 150 suppliers. With sales of $3.90 billion, Collins & Aikman ranks No. 11.

    Together, the two companies would become North America's largest interiors supplier, with combined sales that could total $13.19 billion.

    Under certain circumstances, Lear could raise as much as $2.5 billion to buy its rival, according to company documents filed with the Securities and Exchange Commission.

    Moreover, much of Lear's interiors business overlaps that of Collins & Aikman.

    In theory, a larger interior trim division would allow Lear to demand lower prices for resin, the raw material for most interior trim.

    Analysts have mixed feelings about a Lear bid. Most of Collins & Aikman's business is to the Big 3, so an acquisition would not expand Lear's sales to import automakers significantly.

    If the interior trim business were to be consolidated, Lear could demand higher prices. But that might scare automakers, which encourage bidding wars among their suppliers.

    "The automakers would be concerned about having power concentrated in fewer hands," said Joe Phillippi, an analyst with AutoTrends Consulting in Short Hills, N.J.

    "But it's a monster they created so they are going to have to live with it. You need to find a way to work with your suppliers and give them price relief. It sure as hell doesn't do you any good to have your suppliers going bankrupt on you."


    From Automotive News

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