DETROIT - With its stock trading at a five-year low, Federal-Mogul Corp. is facing investor pressure to buy back shares to boost their value.
A major Federal-Mogul investor is 'putting pressure on the company to buy back its shares,' according to Darren Kimball, an industry stock analyst who tracks the company. He declined to identify the shareholder.
But Federal-Mogul is not alone in its situation. Other automotive parts makers have announced stock buyback programs in recent weeks. Federal-Mogul is under heavier pressure because its share price tumbled more than 70 percent during the past year, analysts say.
Since February, Dana Corp., Arvin Industries Inc., Meritor Automotive Inc., Cummins Engine Co. and others have announced share buyback programs in an effort to boost their lagging stock prices. Their shares have suffered because of concern over slower sales of vehicles in North America.
Many companies that unveil buyback plans say their goal is to raise stock prices by reducing the number of shares in circulation. That boosts per-share earnings. Using their cash this way also allows the supplier to provide shareholders with capital gains rather than the more highly taxed dividends.
Share price is a critical issue for the industry at the moment. Supplier stocks have been lackluster in an era when sexier dot-com firms are attracting the attention of investors with high-flying prices. Low stock prices not only deflate the bonuses paid to company managers, they also make it more difficult to raise money for capital spending programs and acquisitions.
And while no one is suggesting that any of these large suppliers is a take-over candidate, falling stock prices can also trigger a hostile take-over bid.
A share repurchase announcement from Federal-Mogul was expected last month by some analysts following the company's regularly scheduled board meeting. Reached before that meeting, company board member Steve Miller declined to say what buyback plans, if any, the company has. 'I'm here to listen,' the former Chrysler Corp. executive said of the meeting.
Company spokeswoman Kimberly Welch said there are no plans to announce a buyback even if such plans are music to the ears of institutional investors. Institution investors typically include pension funds, mutual funds and others.
'The institutional investors have a bigger stake in Federal-Mogul and we pay close attention to them,' she said. But it is CEO Richard Snell and the company management that sets the course and 'I don't see that position changing.'
Federal-Mogul shares last week traded in the $14 range, well off its $70.45 peak on July 10, 1998. Investors began beating down its share price following the company's Sept. 13, 1999, announcement that it would not meet its third-quarter profit forecasts. The company blamed lower sales of replacement parts.
Federal-Mogul last year considered a modest share repurchase program. Snell told analysts during an October 1999 conference call such a program would have to be funded by asset sales.
But on Feb. 16, the company announced it would not sell its lighting, wiper-blade and fuel-system units because it could not get the adequate prices.
Analysts were also expecting Lear to announce a buyback plan. But spokeswoman Karen Stewart-Spica declined to comment.
Dana, the world's largest supplier of light-truck axles, announced a large buyback programs last month-the second since last year. The company said it would buy $250 million of its shares this year in addition to the $350 million program it began last year.
At current prices, the latest program would remove from the market an estimated 11.7 million shares, representing about 7 percent of all outstanding shares.
Dana shares rose nearly 10 percent to $23.06 on the first trading day following the announcement. The Toledo, Ohio, supplier's shares had fallen nearly 40 percent during the past year on concerns over future auto industry sales.
Last April, Dana began a separate $350 million repurchase and bought $100 million in shares last year. The remaining $250 million buyback will be completed by the end of March, according to a statement by CEO Joe Magliochetti.
Ron Tadross, an analyst with Prudential Securities, said Dana is one of the few companies that has the strong balance sheet needed for a buyback.
Columbus, Ind.-based Arvin, a major supplier of automobile shock absorbers and exhaust systems, announced Feb. 10 it planned to buy back as many as 1 million shares - or 4.1 percent of its outstanding shares - to boost its flagging share prices.
Arvin shares declined by 45 percent during the past 52 weeks. Investors fear sales of replacement exhaust systems and shocks will slow.
At the same time, truck-axle maker Meritor announced last month it would buy back as much as $75 million more of its shares. The repurchase could include as many as 4.7 million shares, or about 7.5 percent of those outstanding.
Meritor bought back 6.8 million shares under a $125 million share-repurchase program from September through January 2000.