April 13, 2010 / 3:46 PM / in 8 years

Magna says strong cash allows for deals

DETROIT (Reuters) - Magna International Inc MGa.TO will tap its “strong” cash position to acquire companies that could support its expansion in emerging markets and key growth areas such as electric vehicle technologies, its co-CEO said on Tuesday.

The Canada-based auto supplier has one of the strongest balance sheets in the auto industry, with more than $3 billion in cash and unused credit lines and $1.2 billion net of debt.

Don Walker said the company has no set budget for spending on deals in 2010 and is open to doing large acquisitions if that allows Magna to expand its foothold in markets such as China, Brazil and Russia and in growth areas such as components for electric cars and hybrids.

“Typically, most of our acquisitions have been $300 million or smaller, but we have the ability to do larger acquisitions up to whatever size,” Walker told Reuters on the sidelines of an industry forum.

“We don’t have a set number. We have the ability to do what we want because we don’t have net debt. We’re looking at what’s out there in the market and whatever we think is a good value.”

Magna saw its ambition to become a full-fledged automaker cut short last year when General Motors Co GM.UL reversed a decision to sell a 55 percent stake in Opel to Magna and its Russian partners, Sberbank SBER03.MM and vehicle maker GAZ (GAZA.RTS).

But its relationship with GAZ has allowed Magna to win a crucial partner in what is expected to be fast-growing market. Magna’s other co-CEO Siegfried Wolf was appointed as chairman of GAZ this year.

“We’re relatively small in emerging markets, but sales growth has been going up in all regions outside Europe and North America,” Walker said.

“In an ideal long-term structure, we’d like to match our revenues with the number of vehicles produced in various regions. If Asia’s going to be 30 percent of global production, we’d like to have 30 percent of our sales in Asia.”

Magna relied on North America and Europe for 77 percent of its 2009 sales, while Detroit’s three automakers -- GM, Ford Motor Co (F.N) and Chrysler -- made up 44 percent of its revenue last year.

    Magna has forecast 2010 revenue OF $19 billion to $20 billion after sales fell 27 percent last year to $17.4 billion amid a global economic downturn.

    Magna is benefiting from sweeping cost cutting and improving auto production in the United States and has captured more business as smaller and weaker suppliers hit hardest by a wrenching downturn leave the industry.

    But Walker said sales in Europe, where Magna drew nearly half of its revenue last year, would be under pressure in 2010 as European governments end incentive programs for people buying fuel-efficient small cars.

    “Europe, we expect, will soften, although we don’t anticipate a huge drop. So we will probably have some restructuring to do in Europe,” Walker added.

    Some analysts expect Magna to pursue acquisitions in Asia to gain more exposure to Japanese automakers and to gradually diversify its revenue away from North America and Europe.

    Reporting by Soyoung Kim; editing by Andre Grenon

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