Lear agrees to buy leather supplier Eagle Ottawa in $850 million deal

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DETROIT -- Lear Corp., which supplies auto seats and electrical power systems, said it agreed to buy automotive leather supplier Eagle Ottawa in a deal valued at $850 million that aims to strengthen the company's global seating business.

Eagle Ottawa's customers include top automakers such as Ford Motor Co., BMW AG, General Motors and Hyundai Motor Co., Lear said in a statement Wednesday.

Lear expects the deal to add about 5 percent to its full-year earnings upon completion, which is expected in the first quarter of 2015.

The company plans to fund the transaction with cash and debt, Lear said.

In a conference call today with investors, Lear CEO Matt Simoncini said the company will continue to search for the right strategic acquisitions.

“We’re continuing to look for the right fit in the electrical business, possibly in connections or software … but that doesn’t preclude us from investing in the seating business,” Simoncini said. “I think if we had the right opportunity, we could move very quickly. I’m not saying anything is imminent, but we’re ready if that opportunity exists.” 

Brett Hoselton, an equity research analyst for KeyBanc Capital Markets Inc., was critical of the acquisition, asking Simoncini why Lear made an acquisition instead of buying back more of its shares, which are performing at a higher return.

Simoncini said: “We expect to continue to buy back shares, but if we don’t invest in the business, our ability to buy back more shares would be significantly reduced. It requires investment and growth to hold our position and to gain on our position. We can’t just buy back shares with our financial resources.”

Lear said it will continue its $2 billion share buyback, which it had $600 million in shares remaining to purchase at the end of its second quarter in June.

Wall Street apparently likes the deal, pushing Lear shares up 3.5 percent today to close at $101.57. 

Previous leaks

Plans for the acquisition began leaking out publicly earlier this month.

"The acquisition of Eagle Ottawa is another important step in strengthening our core seating business, expanding our component capabilities and accelerating profitable sales growth," Lear CEO Matt Simoncini said in the statement. "This transaction will further enhance Lear's position as a global leader in automotive seating and will create significant value for our shareholders."

Eagle Ottawa, which generates roughly $1 billion in annual revenue, supplies leather to more than 50 percent of all cars and light trucks on U.S. roads, including many models marketed by the Detroit 3, Pat Catlin, executive vice president of sales and marketing, told Crain’s Detroit Business in a previous interview. 

Other acquisitions

For Lear, it’s one of several acquisitions as the supplier strives to acquire global scale in the seating business.

In 2012, Lear paid $257 million to acquire Wilmington, N.C.-based automotive textile supplier Guilford Mills. The deal allowed Lear to streamline seat production and take over Guilford's existing contracts with BMW, Chrysler, Ford and others.

Earlier this year, Eagle Ottawa launched a process to recycle the scrap hide into a traditional leather alternative for the auto industry as automakers look to reduce costs and become more eco-friendly.

Eagle Ottawa invested $3 million at a plant in Rochester Hills, Mich., to build a recycled composition leather line.

Lear, based in suburban Detroit, ranks No. 10 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $16.2 billion in 2013. 

Dustin Walsh of Crain's Detroit Business, an affiliate of Automotive News, Philip Nussel and Reuters contributed to this report.

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