Icahn's not leery of auto-parts investment

Lear Corp. sign

KAI RYSSDAL: Carl Icahn's got a new project. You know the name, of course. Icahn's picture is probably in the dictionary next to the entry for corporate raider. He's got a private equity fund he runs. It's made a deal to buy the auto-parts maker Lear for close to $3 billion. That's a lot of money in any case. But as carmakers have been struggling to keep up, their parts suppliers haven't had the easiest time. Five of this country's biggest auto-parts companies have filed for bankruptcy in the past couple of years. Marketplace's Amy Scott has more on what Icahn might have in mind for Lear.


AMY SCOTT: Private equity loves struggling companies with potential. They're cheap to buy but promise future profits. That makes the auto-parts industry a prime target these days. Companies have been battered by losses at Detroit's Big Three. But global demand for their products is growing. John Novak with Morningstar says Lear's in better shape than most. It controls about 40 percent of the U.S. market for auto seats.
JOHN NOVAK: They've been going through a significant restructuring in order to reduce costs and diversify their customer base. So that's underway and should start to produce some results. So there's a number of reasons why Lear would be attractive to an investor like Carl Icahn.

And possibly other investors. Lear has 45 days to entertain other offers. It would have to pay Icahn's fund a break-up fee if it backed out. At least one major investor is holding out for a better price. Icahn's paying $36 s a share. In a letter to Lear's board, one hedge-fund manager said the company's worth closer to $60 a share. Analyst Jim Gillette with CSM Worldwide says that may be a bit optimistic.

JIM GILLETTE: The thing that I'm concerned about is how long it's going to take to actually have some of these changes come to fruition and create greater profits.

Lear may do it faster as a privately-held company. Gillette says the cloud hanging over the U.S. auto industry has made it hard for suppliers to raise money in the public market. Though Icahn's known for shaking things up, signs are he plans to keep Lear pretty much intact. The deal leaves the current management in place.

In New York, I'm Amy Scott for Marketplace.

About the author

Amy Scott is Marketplace’s education correspondent covering the K-12 and higher education beats, as well as general business and economic stories.

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