Icahn Boosts Lear Bid, but Foes Aren't Buying

From Detroit Free Press

Headed toward a showdown against some other Lear Corp. shareholders next week, billionaire financier and legendary corporate raider Carl Icahn reluctantly raised his bid Monday for the Southfield, MI-based maker of automotive seats.

But Icahn’s new bid — $37.25 per share instead of $36 — wasn’t enough to change the minds of shareholders who have been leading the charge against Icahn’s offer. Lear’s management has already blessed the takeover, even at the lower price.

In exchange for boosting his bid by about $100 million, Icahn is guaranteed a $25-million payday, even if he loses the vote, which experts say is unusual and the company’s second-largest shareholder called "distressing."

Considering Icahn’s higher offer, the vote — rescheduled from this Thursday to next Monday — should be a close one, said Lehman Brothers analyst Brian Johnson.

If approved, the total offer from Icahn would be worth $5.4 billion — $2.9 billion that would go to shareholders to take the company private and $2.5 billion in debt that Icahn would take on.

Icahn, who is making the bid through American Real Estate Partners, which he controls, had dismissed the notion of raising his bid.

But after embarking on a campaign to convince shareholders to accept the offer, Lear management asked Icahn for a price increase in late June.

"His reaction was ‘absolutely not,’ " said Daniel Ninivaggi, Lear’s general counsel, who has had numerous conversations with Icahn about the offer.

"We believe that the original deal was fair," he said. "We went to him and said, as a practical matter, we need to do this in order for us to obtain shareholder support."

Richard Pzena, who has been leading the fight against the takeover, said Icahn’s increase was a small step in the right direction.

"It’s not enough to sway our vote," said Pzena, founder of Pzena Investment Management, which, after Icahn, is Lear’s second-largest shareholder, with nearly 9 percent.

The California State Teachers’ Retirement Fund, which owns 1.4 million shares — nearly 2 percent — agrees.

"We feel this company is worth $40 to $50 and Mr. Icahn’s company obviously sees the same value, which is why they want to buy it at $37.25," Christopher Ailman, the fund’s chief investment officer, said in a statement Monday.

In a note to investors, Lehman’s Johnson wrote: "While this increase may swing some votes … we believe it is not likely to move the needle much for bullish fundamental investors. We believe the upcoming vote will still likely be a close call."

Argus Research analyst Kevin Tynan said he thinks shareholders will approve the deal — and would have at $36 a share. He believes the silent majority sees this as a best-case scenario for Lear as it and other suppliers struggle alongside the slumping Detroit automakers.

"I think it maybe adds a little grease to the wheels in getting the deal done, but very little," Tynan told the Associated Press.

Pzena said he is concerned with the new conditions in the offer if shareholders reject the deal.

If they do, Icahn would get $12.5 million in cash and 335,570 new Lear shares, which at $37.25 a share would be valued at $12.5 million. Icahn, who already holds nearly 12 million shares for a 15.6 percent stake in the company, is Lear’s largest shareholder.

Under the new deal, he would be allowed to own as much as 27 percent of the company without winning a shareholder vote — up from a current limit of 24 percent.

Such conditions are highly unusual, said Jim Mallea, research manager at New York-based FactSet Research Systems, which has developed a database of public mergers of U.S. companies since 2003.

Termination fees are common, Mallea said, but typically are triggered by acceptance of a competing bid, not rejection by shareholders.

Pzena said these conditions are hard to swallow. "They’re trying to put pressure on the shareholders to make it happen," he said.

Lear defended the changes, saying they were in consideration of Icahn’s higher bid and time and effort in the five-month transaction effort.

The vote was originally planned for Lear’s annual meeting in Wilmington, Del., on June 27, but that meeting was rescheduled to Thursday after three proxy firms advised rejecting the bid. After that, Lear set out on a campaign to convince shareholders to support the deal. It was after those meetings that Lear returned to Icahn for a higher offer.

The board announced Monday that the Thursday meeting will be only procedural. A special meeting — including the vote — is now scheduled for July 16 in Wilmington.