Automotive supplier Lear Corp. has agreed to an acquisition by one of financier Carl Icahn's holdings, although another potential suitor could step in with a higher offer.
Lear executives announced Feb. 9 that they had agreed to a deal with Icahn's American Real Estate Partners LP for $5.3 million, including a $36 per-share offer for publicly traded stock, plus debt.
``Our board unanimously concluded that the AREP offer was in the best interests of Lear's shareholders,'' Bob Rossiter, chairman and chief executive officer for the Southfield, Mich.-based company, said in a news release.
The deal does not include Lear's interiors unit. That division, which includes injection molding of instrument panels, door panels and other interior trim, is moving forward in a proposal to spin it off into International Automotive Components Group, which is controlled by other New York financial guru, Wilbur Ross.
The remaining parts of Lear, focusing on seating and electronics, would become a privately held company under Icahn's proposal. Lear had $17.8 billion in net sales in 2006 and listed $707.5 million in net loss. The North American interiors unit makes up about $2.5 billion of Lear's overall sales.
But the Lear deal is far from complete.
Under the terms of the agreement, Lear still can solicit alternative proposals for 45 days. If it accepts an alternative, AREP would receive an unspecified payment.
Icahn launched his proposal Feb. 5. He already owns more than 16 percent of Lear's shares, and offered $36 for the shares he did not control - which is up from the $34.67 the stock closed at before the bid. The announcement sent prices climbing, and Lear shares were selling at more than $40 within two days.
But another major holder of Lear stock already has said that Icahn was not offering enough. Pzena Investment Management LLC, which has a 10.1 percent interest, noted in a Feb. 5 letter that it believes the company is worth $60 per share.
``It is our fear that the company's management may have lost sight of the long-term value inherent in the company and that their personal interest in the transaction may create an inherent conflict,'' Pzena co-chief investment officers Richard Pzena and John Goetz wrote. ``We are well aware of Wall Street's short-term mentality and the pressure it can bring on companies.''
Any alternative offers likely would also come from private financing. Groups like those led by Icahn and Ross have become the playmakers in the auto industry, because existing manufacturers lack the capital to compete in most acquisitions, said Mike Benson, managing director for Stout Risius Ross Advisors LLC, a Farmington Hills, Mich.-based investment banking group.
``Most of the deals going on are going to be private equity or, if they're strategic buys [from existing manufacturers] those strategic buys are going to be backed by private equity,'' he said.
That was not the case just three years ago, when competing company Plastech Engineered Products Inc. won its bid for automotive injection molder LDM Technologies Inc.