Wednesday, October 18, 2006
Lear disputes an analyst's contention that it needed cash from the investment.
DETROIT (AP) -- Billionaire investor Carl Icahn, known for demanding change from the managers of numerous companies, has signed an agreement to buy 200 million worth of stock in auto supplier Lear Corp.
Lear, which is among the world's largest makers of auto seats, interior components and electronics, announced the stock deal Tuesday. Under the agreement, Lear would issue 200 million worth of stock in a private placement to funds managed by Icahn.
For his investment, Icahn would get a representative on Lear's board.
"Our increased investment reflects our confidence in Lear's management team and our optimism about the future value of the company," Icahn said in a statement. "We look forward to the opportunity to work actively with management and the other members of the Lear board to help increase value for all shareholders."
Market reacts
The market reacted favorably to the news. Lear stock rose 3.62, or 15 percent, to 28.24 in afternoon trading on the New York Stock Exchange.
But Craig Fitzgerald, a partner with Plante & amp; Moran in Southfield who specializes in the automotive industry, said the deal means the struggling Lear needs money.
"It means that Lear doesn't have a lot of options. It seems like selling to a Carl Icahn firm would not be a CFO or treasurer's first choice to supplement their capital structure," Fitzgerald said. "It might suggest that the environment for alternative investments is very limited."
Response
Mel Stephens, Lear's vice president of communications, said Icahn already was an investor in Lear and approached the company about increasing his stake.
"It wasn't a matter of needing the money at all. It's a matter of having the opportunity to have some additional latitude to pursue some other opportunities," including investments that would allow the company to expand its business with Asian automakers, Stephens said.
Fitzgerald said Lear is heavily reliant on domestic automakers for its business, with roughly 10 percent from General Motors Corp., 25 percent from Ford Motor Co. and 30 percent from DaimlerChrysler AG.
An investment by Icahn is a good sign for Lear, which has low ratings on its debt, said Ed Wiest, vice president and senior analyst with Moody's Investors Service. Lear's orders for new business will help it diversify, he said.
Under the deal with Icahn, Southfield-based Lear would issue nearly 8.7 million shares at 23 per share, which still must receive government antitrust clearance and is expected to close within 45 days, according to a Lear statement.