Canadian Plastics

Analyst says Magna has bid for stake in Chrysler, reviewing interiors business

The equity research analyst who first reported on Aurora, Ont.-based Magna International's interest in Chrysler is ...

March 23, 2007   Canadian Plastics

The equity research analyst who first reported on Aurora, Ont.-based Magna International‘s interest in Chrysler is now saying that the parts supplier has made an offer to buy an interest in the automaker.

According to Brett Hoselton of KeyBanc Capital Markets, the Tier One auto supplier has written a joint letter of interest with an unnamed private equity partner, offering approximately $4.6 to $4.7 billion. The supplier is reportedly looking to take a 20 to 25 per cent stake in Chrysler. Hoselton credited unnamed sources for the information.

“While [Magna] views its offer as low and unlikely to prevail, the company also sees it as an opportunity to purchase an inexpensive stake in the automaker should other bidders retreat,” said Hoselton in a note to investors.

Hoselton also reported that Magna is undertaking an “intensive strategic review” of its interiors business. The alleged 90-day review reportedly has senior individuals looking at everything from operational improvements to the possibility of selling the business.

“We believe [Magna] is open to divesting its interiors business should the existing strategic review fail to define operational improvements that could return it to sustainable long-term profitability,” said Hoselton. “Magna is identifying potential financial buyers for its interiors business should it ultimately decide to sell the unit.”

Hoselton explained that the interiors business has been the largest contributor to recent margin declines, and the business continues to suffer from “poor pricing, raw material costs and underutilization issues.”

Hoselton maintained his hold rating on the companys stock because a sale of the interiors business is not imminent. Magna officials could not be reached for comment.

Magna is one of the leading players in the automotive parts business, and has recently been named a frontrunner in the bid for DaimlerChrysler’s North American arm. Citing sources close to the matter, equity firm Bloomberg named Cerberus Capital Management LLC and a team led by Blackstone Group and Centerbridge Partners LP as the other major bidders for Chrysler.

In other Magna news, the company was awarded a $50 million grant as part of the Ontario provincial budget last week. Information about the grant was not included in the actual budget, but Ontario’s Minister of Finance Greg Sorbara made note of it in his speech to the Ontario legislature.

Sorbara said the $50 million grant would be used to fund a R&D centre in Ontario. There were no additional details available on the funding, and Sorbara told the Toronto Star that negotiations about the grant had ended after the budget went to press.

In his budget speech, Sorbara explained that the companys first project would explore smarter manufacturing and environmentally friendly car. When reached on Friday, a spokesperson for Magna said there were no additional details available on how the money would be used.

A spokesperson for the Finance Minister said that the grant would be coming from the Ontario Ministry of Research and Innovation. The ministry also invested $5.9 million in the Ontario BioCar Initiative earlier this month.


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