The price of becoming one of just two global suppliers of complete automotive interiors was steep, but French supplier Faurecia is set to face off against Lear Corp.
Faurecia Chairman Pierre Levi agreed to pay $1.24 billion for the automotive operations of Sommer-Allibert SA, a cockpit, trim and carpeting supplier. Levi outbid seating rivals Lear, Johnson Controls Inc. and Magna International Inc., according to two sources close to the deal.
With the acquisition, Faurecia (pronounced four-see-uh) changes the global landspace among interiors suppliers. Faurecia joins Lear as one of few companies able to provide a complete interior anywhere in the world.
Neither Magna nor Johnson Controls manufacture automotive carpeting in North America. Visteon Corp. and Delphi Automotive Systems Corp. also are missing one or more pieces from being a complete interior supplier, notes analyst Greg Janicki of CSM Worldwide in Northville, Mich.
The acquisition makes the Boulogne, France, automotive group Europe's No. 1 supplier of interiors and enlarges its presence in North America, Chairman Pierre Levi said in an interview.
'We will become a force to be reckoned with in the automotive world,' said Levi, who agreed to pay a premium of 20 percent over Sommer-Allibert's share price to gain the size he says is needed in the auto industry.
Levi said General Motors and Ford Motor Co. were 'very positive and supportive' of his plans. It was GM that last year give Faurecia a beachhead in North America with a contract to supply seats for GM's next-generation mid-sized cars.
French automaker PSA Peugeot-Citroen, Faurecia's parent company and largest shareholder, played a key role in the deal. It will buy SIT, the de Coninck family holding company that controls Sommer-Allibert of Nanterre, France, then give it to Faurecia. In exchange, its stake in Faurecia will rise to 70 percent from its current 53 percent.
The new group, to be named Faurecia, holds strong positions in seats, ranking third worldwide after Lear and Johnson Controls; cockpits, ranking first in Europe and second worldwide after Visteon Corp.; and exhaust systems, first in Europe and third worldwide.
Sommer-Allibert's North American customers include BMW, Saturn, Ford and Volkswagen in Mexico. It operates a single plant in Fountain Inn, S.C., near BMW's and Saturn's assembly plants. The company last year posted North American sales of about $300 million.
'They fit together beautifully,' said Kevin Mann, a consultant at CSM in Europe. Faurecia is 'exceptionally strong in seating systems but a lot weaker when it comes to interior trim and cockpits.'
Faurecia is building a North American presence. It added an exhaust systems business with its 1999 acquisition of AP Automotive Systems Inc. of Toledo, Ohio. It is talking to a North American automaker about a front-end module, which would be its first such deal here.
TOUGHER PRICING ARENA
But Faurecia still lacks seating capacity in North America. It plans to build four or five new plants in North America for the GM Epsilon global car platform, which includes future editions of the Chevrolet Malibu, Oldsmobile Alero, Pontiac Grand Am, Saturn L series and Opel Vectra.
Analyst Eric Goldstein said Faurecia's ambitions here are bound to make the pricing environment in North America more difficult - even if the company gains no new market share. 'The industry does not need more competition,' said Goldstein, of Bear, Stearns & Co. Inc. of New York.
If Faurecia plans to go head to head with Lear and Johnson Controls, the least expensive strategy could be a joint venture with Magna for its seating operations, according to one of the sources familiar with the deal.
But if Faurecia opts to build or buy additional seating manufacturing, the source said, the company could be committing the same sin as the automakers: building excess capacity.