(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 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
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.
"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.
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
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