DEALTALK-Visteon faces breakup pressure as stock lags

Fri Jul 8, 2011 10:32am EDT

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(For more Reuters DEALTALKS, click [DEALTALK/])

* Visteon's $3.5 bln market value seen below sum of parts

* Shareholders believe breakup could unlock value-sources

* Yanfeng, Halla JVs in Asia may see robust buyer interest

* Execs rejected breakup argument, eye full Halla control

By Soyoung Kim and Deepa Seetharaman

NEW YORK/DETROIT, July 8 (Reuters) - A Visteon Corp (VC.N) hedge fund shareholder that will get two board seats soon has been pushing to break up the U.S. auto parts supplier, betting the company has more value in pieces than as a whole, people close to the situation said.

Visteon's management previously rejected calls for a breakup by the shareholder, Alden Global Capital, and other hedge fund investors, arguing its businesses are closely intertwined and it would be costly and complicated to split up and sell those businesses, these people said.

Visteon, a former Ford Motor Co (F.N) subsidiary, is among nearly 50 U.S. auto parts suppliers that went bankrupt during the financial crisis only to emerge under the ownership of hedge funds and distressed-sector investors that typically do not own firms for the long-term.

As the auto industry rebounds from its recession lows, these funds have seen the value of their investments rise substantially and are now looking to take the profits home.

Visteon, which has four different business lines, is seen as more vulnerable to breakup pressure than more streamlined rivals such as Lear Corp (LEA.N) and Dana Holding Corp (DAN.N), which also have a temporary ownership base after emerging from bankruptcy.

Visteon has a market value of about $3.5 billion -- far less than what many shareholders believe the company's various pieces could add up to. Visteon's two lucrative Asian assets alone could be worth $3 billion to $4 billion, analysts said.

The diversified structure is weighing on the company's shares, which are down 8 percent so far this year since the stock started trading on the New York Stock Exchange on Jan. 10. It trades at below 4 times enterprise value to estimated 2012 earnings before interest, tax, depreciation and amortization (EBITDA), versus the North American auto supplier sector average of 5.6 times tracked by Morgan Stanley.

The Van Buren Township, Michigan-based company avoided a proxy fight with Alden Global Capital in May by agreeing to give the Cayman Islands-based hedge fund board seats. The two nominees are set to join the board in August.

"I don't think the new board members are going to force anything to happen right away, but they will have the voice and their voice will be heard," one of the sources said.

Representatives for Visteon declined to comment, and so did Alden, which owns a 1.8 percent stake in Visteon. All the other sources declined to be named because they were not authorized to speak with the media.

COVETED ASSETS

"Visteon is still kind of a company with a lot of different companies in itself," a second source said, referring to its interiors, climate control, electronics and lighting units. "If you look at other suppliers that concentrate on particular areas, they are more profitable than Visteon as a whole."

Among Visteon's coveted assets is its 50 percent stake in Yanfeng Visteon Automotive Trim Systems, a Chinese supplier of interiors and seating in which Chinese automaker SAIC Motor Corp (600104.SS) owns the other 50 percent stake.

UBS analyst Colin Langan estimated the value of that stake at more than $1.4 billion, while JPMorgan analyst Himanshu Patel said the stake could fetch $2.3 billion for Visteon if it is sold for 12 times 2012 estimated earnings.

Another crown jewel for Visteon is its 70 percent stake in Halla Climate Control Corp (018880.KS), a South Korean maker of air conditioning for vehicles that primarily supplies to fast-growing South Korean automakers Hyundai Motor Co (005380.KS) and Kia Motors Corp (000270.KS).

At Halla's market value of around $2.6 billion, Visteon's stake is worth about $1.8 billion.

Finding a single buyer for the whole company could be a challenge as suppliers do not want to buy into areas they are not already in, analysts and bankers said. But it could attract robust interest if parts are sold separately, they said.

SHAREHOLDER VALUE

Diversified industrial conglomerate Johnson Controls (JCI.N) unsuccessfully bid for Visteon's interiors and electronics units -- including Yanfeng -- in May 2010, when the supplier was in bankruptcy. But it did not offer to buy the rest of the company, such as climate control assets.

JPMorgan's Patel said in a June 8 note that Johnson Controls could still be interested in Yanfeng and also named Lear and France's Faurecia (EPED.PA) as possible bidders.

Another French supplier Valeo (VLOF.PA) and Delphi Automotive could be potentially interested in Visteon's climate control business that includes Halla, analysts said.

Selling its lighting and struggling interior trim business, which has a large exposure to Europe, would also help boost Visteon's multiple, Patel wrote. He forecast there would likely be multiple transactions over the next two to three years.

At an industry conference last month, Visteon Chief Financial Officer William Quigley said the company sees Halla as a "cornerstone" of its climate business and indicated it could consider buying out the 30 percent stake in Halla it does not already own.

People close to the situation added that the management would like to make Visteon a pure play climate control company focused on Halla, but would be open to divesting other businesses.

Visteon, however, has been slow to initiate asset sales partly because with some $830 million of cash and cash equivalents on hand, it does not need the proceeds, they said.

"They've got adequate, even ample liquidity," a third source said. "It's really the question of shareholder value." (Reporting by Soyoung Kim and Deepa Seetharaman, editing by Dave Zimmerman)

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