April 1, 2013 / 12:20 PM / 5 years ago

Lear settles with activist investors, expands board

(Reuters) - Auto parts maker Lear Corp (LEA.N) avoided a proxy battle with investors Marcato Capital Management LLC and Oskie Capital Management LLC by agreeing to increase and quicken the pace of its share buyback program and add a board member.

Marcato - a $1.4 billion hedge fund run by Mick McGuire, one of activist investor William Ackman’s former partners - put pressure on Lear in February, saying it planned to nominate candidates to the company’s board.

Marcato and Oskie have withdrawn their slate and will support the company’s nominees, Lear said on Monday, after it agreed to expand the size of its board to nine from eight.

Marcato reported a 5.2 percent stake in Lear in February, but said in March it had raised its holding to 5.9 percent.

Activist investing has become increasingly popular in the last few months with more money being allocated to the strategy as some players, including Marcato, boast some of the strongest returns in the $2.6 trillion hedge fund industry.

McGuire’s fund, whose other key holdings include Corrections Corp of America (CXW.N), Cincinnati Bell Inc (CBB.N), NCR Corp (NCR.N) and Ryman Hospitality Properties Inc (RHP.N), ranked among last year’s top performers with a roughly 29 percent gain.

His low-key approach with Lear likely saved both Lear and Marcato millions of dollars by avoiding a full proxy fight - often costly and disruptive.


Lear, which repurchased $200 million of its shares in the first three months of 2013, said it would buy back the remaining $800 million in its program in the next 12 months. Lear had earlier said it would complete the program by the end of 2014.

Lear also said it would start on a new $750 million buyback program soon after the current plan ended.

    “Over the past two years, Lear has returned more cash to shareholders through dividends and share repurchases as a percentage of our market capitalization than any of our automotive supplier peers,” Chairman Henry Wallace said in a statement.

    The company, which has a market value of more than $5 billion, had cash and equivalents of $1.40 billion as of December 31 and no short-term debt balances outstanding. It had long-term liabilities of $1.37 billion.

    “When you look at the financial impact of doing the repurchases, it will not put Lear at a compromised position,” Guggenheim Securities LLC analyst Matthew Stover said.

    Lear has the flexibility to invest in its own business as well as to pursue acquisitions, Stover said.

    Southfield, Michigan-based Lear reported a fourth-quarter profit in February that beat analysts’ expectations.

    In 2007, Lear rejected a $3 billion buyout attempt by an affiliate of billionaire investor Carl Icahn.

    Lear’s shares were up 1.1 percent at $55.48 in afternoon trading Monday on the New York Stock Exchange. They have gained 8 percent since February 8, when Marcato said it would nominate candidates to the board.

    Additional reporting by A. Ananthalakshmi in Bangalore; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty

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