Dealtalk: Activist's nominees push for Visteon breakup

Wed Nov 2, 2011 7:02am EDT

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(Reuters) - New directors nominated by an activist investor are leading a push to break up Visteon Corp (VC.N), even though the U.S. auto parts supplier's management has argued against such a move, people familiar with the situation said.

The directors, Harry Wilson and Kevin Dowd, were the driving force behind some of Visteon's key decisions last month, including hiring Goldman Sachs (GS.N) as a financial adviser and replacing the company's chief financial officer, according to these people.

They also took on key corporate strategy roles themselves on behalf of the 10-member board. Hedge fund Alden Global Capital nominated Wilson and Dowd, who are both restructuring specialists, to Visteon's board in August.

Visteon, the former parts affiliate of Ford Motor Co (F.N), has four different businesses: climate control, interiors, electronics and lighting.

But its stakes in South Korea's Halla Climate Control Corp (018880.KS) and China's Yanfeng Visteon Automotive Trim Systems are seen as its best assets. Analysts have estimated that these two Asian assets alone could be worth $3 billion to $4 billion, exceeding the roughly $3 billion market value of Visteon.

The board, betting on the view that Visteon has more value in pieces than as a whole, is now examining various options to break up the company, these sources said.

One strategy includes selling or spinning off Visteon's 70 percent stake in Halla, as well as its 50 percent stake in Yanfeng, these people said.

Another option would see Visteon sell most of its assets except Halla to become a pure-play climate control supplier with strong exposure to fast-growing South Korean automakers, they said. Halla makes air conditioning and heating systems for vehicles and counts Hyundai Motor Co (005380.KS) and Kia Motors Corp (000270.KS) as its major customers.

A Visteon spokesman said: "The board is unified in its desire to have Visteon succeed and is aligned with the management in its commitment to deliver to shareholders."

Wilson, who advised the Obama administration on the 2009 bankruptcy restructuring of General Motors Co (GM.N), and Dowd did not immediately return calls for comment. Alden declined to comment.

Visteon is one of scores of auto suppliers that went bankrupt in the last few years only to emerge in the hands of hedge funds and distressed investors. A stalled recovery in U.S. auto sales and the economy has made it tough for some of the short-term investors to cash out of their investments.

Other auto suppliers such as Cooper Standard Holdings Inc COSH.OB and Federal Mogul (FDML.O) tried to sell this year but failed as financing remained challenging, while Wilbur Ross' auto company, International Automotive Components Group, has postponed a public offering initially targeted for 2011.

Visteon management has previously argued against a breakup of the company, and instead put its smaller lighting business, which accounts for less than 10 percent of revenue, on the block earlier this summer, the sources said.

Visteon's long-time financial adviser Rothschild has been advising on the lighting business sale and is now also helping the company review a potential sale of other low-margin businesses such as interiors, the people said.

But Wilson, Dowd and some other directors are asking for a more radical solution, the sources said. While not all board members have the same view, there is broad acknowledgment that the company in its current form is not creating value for shareholders, the sources said.

TOUGH SELL

Visteon management has long maintained that a breakup would not work because its businesses are closely intertwined and selling either Yanfeng or Halla would be a challenge, Reuters has previously reported. [ID:nN1E7670GX]

If Visteon elects to sell its stake in Yanfeng to a third party, its joint venture partner SAIC Motor Corp (600104.SS) has the right of first refusal to buy it back on the same terms offered to the outside party.

Selling its Halla stake -- or buying out its partner -- is also difficult because such a deal would require consent from the unit's top automaker customer, Hyundai Motor Co (005380.KS), the sources said. Hyundai relies on Halla for 75 percent of its air-conditioning and heating system needs.

One of the sources said Halla's reliance on Hyundai makes for a complicated deal. Any buyer would risk Hyundai taking its business elsewhere unless the South Korean automaker backs the buyer, the source said.

"The challenge for any buyer is to make that judgment," the source said, adding that the only realistic buyer for Halla might be a South Korean-based party backed by Hyundai.

Meanwhile, Visteon's lighting and interiors might draw only limited interest as most interiors suppliers are suffering weak margins and not looking to expand there.

Any deal is unlikely to bring in any material proceeds but would signal that Visteon is moving into a simpler corporate structure -- a positive for investors, sources said.

(Reporting by Soyoung Kim, additional reporting by Paritosh Bansal, editing by Matthew Lewis)

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