An activist investor is urging auto supplier Lear Corp.to split in two for better shareholder value.
San Francisco-based Marcato Capital Management LLCsent a letter to Lear's board Feb. 3 urging the company to split its two divisions — electrical and seating — into separate companies, Mel Stephens, vice president of investor relations and corporate communications told Crain's Detroit Business, a sister publication of Plastics News..
Marcato founder Mick McGuire wrote in the letter that the combined value of two separate entities could fetch $145 per share, nearly 35 percent above its share price in trading that morning, CNBC reported.
Stephens said management and the board is reviewing the letter.
Marcato's request comes days after Southfield-based Lear posted much better than expected fourth quarter earnings.
Lear reported net income of $261.8 million, or $3.24 per share, on revenue of $4.55 billion for its fourth quarter, which ended Dec. 31, the company said in a statement last week. During the same quarter last year, it reported net income of $72.8 million, or 88 cents per share, on revenue of $4.3 billion.
“Our board regularly reviews the whole gambit of value creation options…they have a good record of doing so,” Stephens said. “We believe our strategy is working and we're on the right track.”
Stephens said Lear has returned more than $2 billion to shareholders since 2011 and completed acquisitions, including the $850 million acquisition of Auburn Hills-based Eagle Ottawa LLClast month.
This isn't Lear's first run-in with Marcato and other activist investors.
In March 2013, Marcato threatened a proxy battle at Lear's annual shareholders meeting if it didn't make board changes. Marcato filed with the U.S. Securities and Exchange Commission to seat McGuire, David Markowitz, founder of Oskie Capital Management LLC, and Enrico Digirolamo, senior vice president at Allstate Insuranceand former CFO at General Motors Co.
Lear compromised with Marcato and placed Richard Bott, retired vice chairman of institutional securities at Morgan Stanley, to its board of directors in September 2013. It also accelerated its $1 billion stock buyback program and increased its quarterly dividend to satisfy Marcato's demands.
Under the agreement, Marcato and Oskie withdrew their nominees for Lear's board and agreed to a mutually acceptable ninth director.
Lear compromised with the hedge funds after feedback from other shareholders, CEO Matt Simoncini told Crain's in April 2013.
“I would tell you, if it was specific to just 5 percent (of) stockholders, if it was an extreme position, we wouldn't have listened,” Simoncini said. “Here, we listened to a lot of them. When we reached out, we realized there was more of the feeling in our shareholder base that we could increase our position.”
Marcato owns more than 3.6 million shares of Lear worth nearly $391 million, or 4.6 percent of its outstanding shares.
