ArvinMeritor Inc. has launched a bid to buy competitor Dana Corp. in a $4.4 billion offer that may signal the start of another series of mergers and acquisitions for manufacturers.
Troy, Mich.-based ArvinMeritor - itself created in a 2000 merger - is offering $15 per share for Dana stock in the proposed deal announced July 8. The stock deal would be worth about $2.2 billion in cash. ArvinMeritor would pick up another $2.2 billion in Dana debt.
The combined company would be a global auto-supply powerhouse far more capable of competing in the current economic environment, ArvinMeritor Chairman and Chief Executive Officer Larry Yost said in a conference call.
``ArvinMeritor and Dana are an ideal combination,'' he said. ``This is a solution that is great for our customers and employees and great for both companies' shareholders.''
Executives for Toledo, Ohio-based Dana asked stockholders to hold their shares until its board can consider the offer. They promised a response within 10 days.
Both companies are involved heavily in metal systems for the auto industry, producing axles, undercarriage structures, engine-management systems and steering and suspension systems. Both also have limited exposure in plastics, with Dana's Plumley Division turning out gaskets, seals and hoses and ArvinMeritor using plastics for roof, door and body-panel units.
The buyout offer comes a little more than a month after ArvinMeritor first approached Dana officials about a potential acquisition, and two years after the companies talked about combining their aftermarket units.
Those 2001 discussions, Yost said, never came to fruition but did start ArvinMeritor thinking about what Dana could bring to the firm.
At the start of June, ArvinMeritor approached Dana executives with an initial offer of $14 per share. Joe Magliochetti, Dana chairman, chief executive officer and president, rejected it, without getting reactions from his board, Yost said.
ArvinMeritor followed up with a letter to Dana directors offering to consider flexible cash and stock, but was rejected again, so now ArvinMeritor has opted to bring the offer directly to shareholders. The company already owns more than 1 million Dana shares.
The current business climate is forcing companies to become bigger to compete, Yost said. That was a driving force behind the merger of Arvin Industries Inc., with $3.1 billion in sales, and Meritor Automotive Inc., with sales of $4.4 billion, in 2000.
Now ArvinMeritor, with $7.3 billion in sales, believes it can offer greater scale and flexibility to Dana, which has $9.6 billion in sales.
By combining their business units, the companies would have a greater balance of customer base and product mix, allowing them to weather downturns hitting one or two components of the operation. Yost also estimated the firms could see $200 million in savings annually by eliminating redundant overhead and leveraging each company's best production practices.
``We know how to integrate businesses and build strong brands,'' he said. ``We've done it before, and we've done it successfully.''
If completed, the deal could mark a renewed interest in mergers and acquisitions for companies operating in a variety of industries. Firms that had pulled back from buyouts when the economy fell at the end of 2000 now are seeking out potential for new deals.
``The companies that have weathered the storm are looking to acquire as part of a growth strategy, and that hasn't happened for the last couple of years,'' said Phil Gilbert, managing director P&M Corporate Finance LLC, a Southfield, Mich,-based firm active in mergers and acquisitions for midsize firms.
``The dam has not broken, but I think it's imminent.''
Businesses looking to sell are clearing their decks to put on the best face for possible buyers, he added.
Most action at the start will focus on niche operations that can offer something unique, Gilbert predicted, with action heating up late this year and in early 2004.
``There are a lot of dynamics at play out there,'' he said. ``They're interested, they're engaged, but they're not making the deals just yet.''