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Firms Eye Cooper, Dana Auto Part Units-Sources

A handful of large private equity firms are considering bids for two key automotive parts businesses on the auction block, sources close to the situation said. Both Dana Corp. and Cooper Tire and Rubber Co. have announced they may divest their auto parts businesses. Each unit may separately fetch $1 billion or more, analysts estimate.

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From Reuters via MEMA Industry News

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NEW YORK — A handful of large private equity firms are considering bids for two key automotive parts businesses on the auction block, sources close to the situation said.

Both Dana Corp. and Cooper Tire and Rubber Co. have announced they may divest their auto parts businesses. Each unit may separately fetch $1 billion or more, analysts estimate.

Two buyout firms – Texas Pacific Group and Cypress Group – are looking at both auto parts businesses, but neither firm is likely to acquire both at the same time, sources told Reuters.

And Carlyle Group is weighing an offer for just the Dana businesses, the sources said. Both auctions are also expected to attract interest from corporate competitors including Tenneco Automotive Inc.

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Texas Pacific, Cypress and Carlyle all declined to comment.

A purchase of either business by a buyout shop would mark the latest effort by private investors to generate above-market returns in the struggling auto parts sector, where brutal competition and pressure by car manufacturers has pushed many into bankruptcy.

Blackstone Group, for instance, last year purchased TRW Inc.’s auto parts business for about $4.7 billion, while Carlyle last year purchased United Components, another major auto parts maker, for about $800 million.

And buyout firm Heartland Industrial Partners is trying to turn around another major car parts maker, Collins & Aikman Corp., while distressed asset fund Matlin Patterson recently took control of Oxford Automotive by buying its debt.

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Dana, one of the world’s largest auto parts makers, said in December that it plans to exit the business for replacement parts by selling its “aftermarket” division. The Detroit-based company hired Goldman Sachs and Credit Suisse First Boston to sell the business.

The business, which makes brakes, filters and other replacement parts and accounts for a quarter of Dana’s revenue could fetch $1 billion or more, especially if bidding between private equity shops became heated, analysts said.

Dana executives said in February that they had attracted interest in the business from potential European acquirers as well as from other strategic and financial buyers.

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And Cooper said last month it might sell its auto parts business, reversing course after ramping up that unit. It said it wanted to pay down debt and focus on tires, and it hired investment bank Lazard LLC to help it explore options for the business. Analysts estimated that the Cooper auto parts unit could sell for as much as $1.2 billion.

Cooper bought Standard Products Co. in 1999 to strengthen its business outside of the tire market. The business accounts for about half Cooper’s total sales.

Forceful pricing pressure from the giant automakers that buy Cooper’s sealing products and vibration control systems could pose concerns among bidders concerned with parts suppliers’ narrowing margins.

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The market for replacement parts such as Dana’s has also suffered from stiff pricing pressure and declining demand, as vehicles and their original parts improve in quality.

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