Out of favor with Wall Street, several automotive parts makers are ending their days as public companies. More conversions are expected.
Last week Jason Inc., a Milwaukee Tier 2 supplier of fiber insulation, agreed to be taken private in a $335 million management-led buyout.
Last month Hayes Lemmerz International Inc., the world's largest wheel maker, announced that its largest shareholder offered to buy out the company's remaining shares. Two months earlier, a Los Angeles investment group took Autocam Corp. private.
Another supplier frustrated by a low share price, Mark IV Industries Inc., last month said it retained investment bankers to examine options including a sale. Taking the company private has not been ruled out. Mark IV is the world's largest maker of camshafts.
Jason, Hayes, Autocam and many other parts makers have become Wall Street's wallflowers. They have been left behind by the market's obsession with high-tech issues and fears that auto production will fall. Suppliers are not alone. During the first nine months of 1999, nearly 40 going-private deals in the United States were announced, compared with 22 the previous year, according to a survey by investment firm Piper Jaffrey Inc. of Minneapolis.
Many automotive suppliers have been hit hard by investor concerns about a decline in auto production this year. But analyst Eric Goldstein of Bear Stearns & Co. Inc. of New York said small to mid-sized suppliers are adopting a going-private strategy.
John Eberhardt Jr., senior managing partner with Austin-Pierce Ltd. in New York, said other smaller suppliers 'who cannot deliver the bacon to shareholders' could be next.
Even profitable companies are under pressure. Hayes Lemmerz and Autocam are profitable. And Jason, a supplier to Lear Corp., had record earnings over the past two years, but the stock fell 15 percent in the past year.
Now that Jason is to be taken private by its chairman, its CEO and New York investment firm Saw Mill Capital LLC, shareholders can expect a 63 percent premium over the last 60 days average closing stock price, said Mark Train, CEO. 'The public markets have failed to value Jason in accordance with its performance and its position in the markets it serves,' Train said.
Suppliers with ill-fitting organizations from mergers also may find the private arena to their liking, said Thomas Evans, CEO of Collins & Aikman Corp. Restructuring could entail added debt or charges against earnings. Such moves by a public company can earn frowns from Wall Street analysts who focus on quarterly improvement.
One of the largest suppliers announcing that it is going private is Hayes Lemmerz, which was projected to do about $2.2 billion in global sales last year. Investors who own nearly 78 percent of the shares and leveraged buyout fund manager Joseph Littlejohn & Levy, have offered $131 million to buy the shares they do not own.
The share price of Hayes Lemmerz, of Northville, Mich., like those of many auto suppliers, has slumped. Before the buyout offer, the company's stock traded nearly 10 times its estimated 2000 profit. By comparison, the Standard & Poor's 500 Index trades at about 30 times estimated profit.
Company shares, which traded as high as $40.25 per share on June 5, 1998, hit a low of $15.13 on Dec. 15, 1999.
Share price declines for many auto parts manufacturers began in early 1998, said Efriam Levy, an analyst with Standard & Poor's in New York. Global uncertainty from the Russian loan default and fears of a slowdown in U.S. auto sales had a negative effect, he said.
One company that was able to jump-start its share price is Collins & Aikman of Troy, Mich. Company CEO Evans is moving the company from largely being a low-margin commodity textile supplier to a supplier of styled interior fabrics and trim with acoustic and other benefits. The sharper focus last year boosted shareholder returns.
Evans said that even healthy companies are suffering from share price valuations he estimates are as much as 40 percent below where they should be. 'That is often a signal for management or investors to take a good look at privatization.'
Mark IV of Amherst, N.Y., tried nearly everything to reverse its stock price slide. Its price began plummeting during 1997 even as earnings and sales improved. The company repurchased a third of its 66 million outstanding shares and sold units that make Purolator and Facet filters - to little effect.
'Industrial America is suffering the same malady,' said Sal Alfiero, CEO and the company's largest shareholder. 'We've got a $2 billion company that makes money while you've got dot-com companies that lose money every year.'
Aurora Capital Group, the private investment firm that took Autocam private last November, saw opportunities in the company as a private concern. The investors paid $121 million for its shares. Autocam, a Kentwood, Mich., supplier of precision-machined components, earned $6.3 million on sales of $180 million in the year ended June 30.
Taking a company private can give it time to regain its footing. It then can be recapitalized or again sold via an initial public offering.
About 12 years ago, an investor group acquired Lear Siegler Inc and took the company private. The automotive seating unit was spun off in 1988 to an investor group headed by CEO Ken Way, his senior executives and investment house Lehman Brothers Inc.
They took the company public in April 1994. Since then, sales have quadrupled to $12 billion.