Lear May Bid on Collins & Aikman

Lear Corp. is considering a bid to purchase bankrupt interior supplier Collins & Aikman Corp., according to a source close to the situation. The combination of the two companies would create the world's third-biggest automotive supplier, with nearly $21 billion in sales, and enhance Lear's standing as the industry's largest supplier of interiors, with most major car companies as customers.

From The Detroit News

SOUTHFIELD, MI — Lear Corp. is considering a bid to purchase bankrupt interior supplier Collins & Aikman Corp., according to a source close to the situation.

The combination of the two companies would create the world’s third-biggest automotive supplier, with nearly $21 billion in sales, and enhance Lear’s standing as the industry’s largest supplier of interiors, with most major car companies as customers.

“We are exploring alternatives but not commenting on rumors,” said Andrea Puchalsky, a spokeswoman for Lear.

Last week, Plastech Products Inc. said it was prepared to make an offer of up to $1 billion in cash for Collins & Aikman, pending a review of the troubled supplier’s finances and manufacturing operations.

Collins & Aikman filed for bankruptcy protection May 17 following a drop in North American vehicle production, a sharp rise in raw material prices and high debt levels resulting from an acquisition binge.

Last week, six automakers pledged to kick in $200 million to help keep the company in business and guarantee a steady supply of parts.

The company must submit a new operating plan to the group by the end of the month.

Nine of every 10 vehicles built in the United States has some interior component built by Collins & Aikman, which is why there is tremendous interest in keeping the company afloat. Some of the hottest vehicles on the market, including the Chrysler 300, Ford Mustang and Honda Odyssey minivan, contain Collins & Aikman components.

“We fully anticipate interest coming from a number of parties,” Collins & Aikman spokesman David Youngman said. “However, we cannot comment on any specifics at this time.”

Weaker car and truck output and rising raw material prices have also stung Lear, the world’s largest supplier of automotive interiors.

After posting a second-quarter loss of $44.4 million, Lear said last month it was re-evaluating its struggling interiors business. It also said it was placing acquisitions on hold.

In 2003, the profit margin on plastic interior trim was 3.9 percent, Puchalsky said, but during the first half of this year, the company has lost money on its interiors business because of rising prices for petroleum-based resin.

Lear has hired a consultant to help explore options — partial or complete sale, merger, consolidation or joint ventures — for the interiors business.

A combination of Lear and Collins & Aikman would create more scale and help lower costs in the competitive automotive interiors market, said Brett Smith, an analyst with the Center for Automotive Research in Ann Arbor.

Automakers routinely seek price cuts on components, putting more pressure on suppliers to increase scale, enhance manufacturing efficiency and lower operating costs.

A takeover could maximize the use of Lear’s plants while allowing Collins & Aikman to reduce manufacturing capacity.

“It could create the ability for Collins & Aikman to move some of that work to Lear’s plants, closing some of C&A’s plants, or moving that work into common facilities,” Smith said.

But a bidding war would greatly diminish Collins & Aikman’s value to Lear, Smith said.

The company disclosed Friday that it is turning over financial documents to a federal court that is investigating whether executives lied about the company’s financial health.

_______________________________________

Click here to view the rest of today’s headlines.