Tenneco Inc. Chairman Dana Mead resolved the company's eight-year effort to remake itself, but he left a big question for his automotive group.
Last week, Mead announced plans to spin off his packaging and automotive operations into two separate companies.
By opting for a spinoff instead of an outright sale, he will create a stand-alone automotive company with $3.2 billion in annual sales. Mead, 63, 'is likely' to have a role with one or both companies, spokeswoman Barbara Posner said.
Mark Frissora, named last month as president of the automotive business, based in Lake Forest, Ill., said he wants the company to grow with equal measures of acquisitions and internal growth.
'I think we'll have a balanced approach going forward,' he said. 'Half (our revenue growth) will come from acquisitions, and half from organic growth. We don't plan to acquire companies just to get bigger. We plan to be selective.'
TOWER TALKS FAIL
Mead's spinoff strategy follows the collapse last month of talks to merge Tenneco Automotive. Automotive News reported that Tower Automotive Inc. of Grand Rapids, Mich., was close to a deal with Tenneco, but negotiations fell apart late on April 16.
Tenneco Automotive, supplier of Monroe shocks and Walker exhaust products, stood to gain from a merger with Tower, a supplier of suspensions and structural stampings. Both seek to supply a vehicle's corners, which include the suspension, brakes and wheels.
Analyst David Strickler said Tenneco 'by itself does not have strong prospects for growth in the future' because the company does not supply all the key components for a vehicle's corner modules.
'The future of the industry is headed that way, but they are not positioned for the future,' said Strickler, of Bowles Hollowell Connor, a division of First Union Capital Markets Corp., Charlotte, N.C.
Wall Street, too, appears skeptical. Company shares have traded in the high $20 and low $30 range this year, down from a 52-week high of $43.75 a year ago.
However, Tenneco notes that it is carrying out a plan to produce corner modules. Tenneco formed a joint venture with ITT Automotive in 1996 and later with Benteler Automotive of Paderborn, Germany, to produce corner modules. Benteler designed chassis components, Tenneco supplied suspensions and ITT produced brakes.
The joint venture has won at least one major contract for corner modules, although Tenneco declined to name the customer.
Tenneco Automotive also will get a boost in 2000 from a new contract valued at $200 million annually to provide exhaust systems for General Motors' new Epsilon mid-sized car platform, according to Value Line Publishing of New York. The auto group also possesses strong brand names.
Tenneco previously has relied on acquisitions to fuel rapid growth. From 1994-99, the company acquired 12 other suppliers, adding $1 billion in revenue.
However, Tenneco failed to complete the biggest deal of all: the acquisition of ITT Automotive's brake-and-chassis division, which went on the block last year. That deal would have made Tenneco a top player in this evolving market segment.