Magna International Inc. will buy Donnelly Corp. and merge it into its own mirror group to make Magna the biggest automotive mirror maker in the world.
Donnelly officials say the $415 million deal will give their company the heft needed to ensure further growth for the new Magna Donnelly group.
Dwane Baumgardner, Donnelly's chairman and chief executive officer, will run the new $1.2 billion wholly owned subsidiary, which will include injection molding operations in North America and Europe and will employ more than 6,000. The new business also will continue Donnelly's nonmirror operations, which produce door handles and glass and plastic window systems.
The deal, announced June 25, still is subject to regulatory approval in the United States and Europe. Donnelly also must obtain shareholder approval, although that should not be a problem since more than 70 percent of Donnelly stock is controlled by company insiders. The businesses expect to complete the purchase in September.
Magna sat out most of the buyout boom of the past decade, instead organizing its own units from its base in Aurora, Ontario. Its holdings include both private and publicly traded operations, with Magna holding a controlling share in the public companies. Units include plastic exterior specialist Decoma International Inc., interior giant Intier Automotive Inc., metal bender Cosma International Inc. and Magna Steyr, which makes drivetrains and assembles complete cars in Europe.
Its Magna Mirror Systems unit, however, was a small player on the global field.
``If you look at their whole portfolio, they are one of the biggest players out there for every business they have, except for mirrors,'' Frank O'Brien, vice president of corporate development, said during an interview at Donnelly's headquarters in Holland.
Donnelly, with sales last year of $850 million, is the second-largest automotive mirror supplier globally. It is the 17th-largest injection molder in North America, according to Plastics News' annual survey, with $375 million in molding sales alone last year.
The purchase plan is worth $320 million in Magna stock for Donnelly shareholders and another $95 million in debt.
Donnelly can give Magna Mirror Systems production muscle, and gives Magna the opportunity to leverage Donnelly's recently developed expertise in electronics. Donnelly turns out interior mirrors that automatically adjust to headlight glare, provide temperature data and carry speakers and microphones for telecommunications. Its exterior systems can include external lighting, turn signals and power folding. Donnelly also has rolled out a series of remote cameras to check on everything from sleeping children to polo ponies being transported in a trailer.
``We've got a lot of value-added features that can go into an interior or an exterior mirror,'' O'Brien said.
What Donnelly has not had, however, is the sheer size needed to compete in a market moving further into complete modules and requiring more remote ``just-in-time'' assembly locations.
``Some of the deals they're making today are made at very high levels,'' O'Brien said. ``If the [automaker] says he wants to build a plant in Mississippi, for example, and he needs a JIT plant next door, it is easier for a Tier 0.5-type of player to say that he can come in there and give you the seats, plus the door panels, plus the cockpits, plus the headliners.
``Somebody of our size can't compete against those companies.''
But Magna can. Magna is the seventh-largest automotive supplier in the world, with more than $7 billion in annual sales, according to Automotive News, a sister publication of Plastics News. Its multiple operations will give Donnelly a chance to partner with an exterior or interior specialist - depending on the individual contracts.
Decoma, for instance, could bid for a complete rear-end system on a sport utility vehicle that would take advantage of its composite and thermoplastic components, combine it with structural metal parts from Cosma and match it with a window enclosure now produced by Donnelly.
In mirrors alone, Donnelly now will have more contacts because of Magna Mirror, O'Brien said. The Magna group supplies exterior mirrors on Toyota, Chrysler and Mercedes vehicles.
``Those are customers we coveted for exterior business,'' O'Brien said. ``Now we'll have them coming into our group.''
The purchase will not give the Donnelly group automatic entree, though, warned analyst Dennis Virag, president of Automotive Consulting Group Inc. of Ann Arbor, Mich. Magna takes a hands-off approach to its holdings, so each individual company must prove it can compete on its own.
``Donnelly will still have to control its own destiny,'' he said. ``Magna is a great company with very good management, but it is very autonomous in terms of its operations. Any improvements that need to be done must be done internally.''