December 13, 2018 / 3:35 PM / 8 months ago

Exclusive: Motherson Sumi in early stage merger talks with Leoni - sources

FRANKFURT/HONG KONG (Reuters) - Car wiring maker Motherson Sumi (MOSS.NS) is in early-stage talks with German peer Leoni (LEOGn.DE) over a possible combination of the two companies, two people close to the matter said.

The car industry and its suppliers, facing a regulatory crackdown on diesel emissions and a slump in China, have issued a slew of profit warnings in recent months and companies are shaking up their businesses in order to adapt.

Motherson Sumi, which is a joint venture between India’s Samvardhana Motherson Group and Japan’s Sumitomo Wiring Systems (5802.T), has snapped up a number of companies in recent years, adding to its range of automotive interior products including rearview mirrors, wiring harnesses and rubber and plastic components.

The company has been scouting for a sizeable acquisition target in Europe with the help of an investment bank. Any deal with Leoni could be worth more than 1 billion euros ($1.14 billion) but financing still needs to be worked out, one of the people said.

The exact deal structure was still unclear, and deliberations may not result in any deal at all, the sources added.

An acquisition of Leoni would add to Motherson Sumi’s 180 facilities across 37 countries and bolster overseas sales.

Motherson Sumi, which counts several global automakers including Daimler AG (DAIGn.DE) and Volkswagen AG (VOWG_p.DE), as clients, had no immediate comment. Leoni declined to comment.

Shares in Leoni, which has a market cap of $7.1 billion, closed 18 percent higher for their biggest one-day gain in nearly 10 years. The share price had dropped almost 60 percent this year as demand stagnated, with the company citing rising global trade tensions and stricter emissions rules for slowing business.

Motherson Sumi most recently acquired Reydel Automotive, which manufactures door panels and cockpit modules, for about $200 million to help meet its target of not having any component, customer or country contribute more than 15 percent to its business by 2020.

Parent company Samvardhana Motherson is one of the world’s fastest growing specialised automotive component manufacturers, recording a turnover of $10.5 billion in fiscal 2017/18, according to Motherson Sumi’s latest annual report.

Cable and wiring system specialist Leoni brought in Aldo Kamper as its new chief executive in September. After cutting its 2018 targets, the company is undertaking a comprehensive restructuring program.

Analysts at Berenberg said in August that although Leoni had a large order backlog, it needed to improve its cost structure, with additional costs likely to negatively affect 2019 earnings.

Additional reporting by Aditi Shah and Alexander Hübner; Editing by Maria Sheahan and Kirsten Donovan

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