TURIN, Italy - Visteon Corp., the world's second-largest auto supplier, is negotiating to buy most of Italian auto supplier Magneti Marelli from Fiat S.p.A. for as much as $2.5 billion.
Sources close to the talks say Fiat also is weighing offers from other major auto suppliers that want to acquire parts of Magneti Marelli. The insiders say Fiat has received at least four proposals to buy various Magneti Marelli divisions, but only one for the bulk of the company - from Visteon.
Magneti Marelli makes fuel injectors for gasoline and diesel engines, engine control computers, suspension components, engine cooling modules and instrument clusters.
But insiders stress that a deal is far from certain.
Visteon spokeswoman Liane Smyth would not confirm or deny that the company has been negotiating with Magneti Marelli.
But Visteon Chairman Peter Pestillo has made no secret that the company is looking for acquisitions, particularly in Europe. The stock price of France's Valeo SA rose sharply in early November on rumors that Visteon was set to buy.
'I've said in the past we need to enhance our presence in Europe, but we're not going to take the cash and just buy something to buy somebody,' Pestillo said this month.
It is unclear how Visteon would finance the acquisition of Magneti Marelli. At the end of September, Visteon had about $1.2 billion in cash but carried $2.3 billion in debt, according to its 10-Q quarterly filing with the Securities and Exchange Commission.
Officials at Denso Corp. of Japan confirm that they have been negotiating for Magneti Marelli's air conditioning business.
An announcement of that deal could come as early as this week.
SHORING UP EUROPE
Acquiring Magneti Marelli would enlarge Visteon's global operation dramatically.
Visteon is the world's No. 2 automotive supplier with sales of $18.5 billion in 1999, but it ranked just 12th in Europe with sales of $2.6 billion. Last year, 81 percent of Visteon's sales were in the United States, 16 percent in Europe and 3 percent in Asia. In contrast, 83 percent of Magneti Marelli's 1999 sales were in Europe.
Visteon, of Dearborn, Mich., is trying to reduce its dependence on Ford Motor Co. and the North American market.
Visteon also could benefit from the equity partnership formed in March between General Motors and Fiat. Under the partnership, GM is ready to base future Opel/Vauxhall models on Fiat's new modular platform, a move that would favor Marelli.
Engines and transmissions are the key areas being studied by the integration teams set up by GM and Fiat to identify synergies.
Visteon executives have been reviewing Magneti Marelli operations, financial accounts and order books since mid-November. The Visteon team has been based at the Hotel Excelsior in Magenta, Italy, a small city 12.5 miles west of Milan near Magneti Marelli headquarters. Paolo Cantarella, CEO of Fiat S.p.A., took part in a meeting Nov. 17.
$2.3 BILLION BUSINESS
The combined 1999 sales of the Magneti Marelli units offered to Visteon were e2.75 billion, or $2.32 billion at current exchange rates - about 69 percent of the company's total revenue. A Magneti Marelli source said Visteon would be expected to pay more than $2.53 billion for the units.
The same source said a deal could be announced by year end and completed in the first half of 2001 following approval from antitrust authorities.
Visteon has been offered all but two of Magneti Marelli's divisions:
MM Climatizzazione, a supplier of air conditioning systems that is a joint venture with Denso Corp. Denso holds a 25 percent stake in the venture and Magneti Marelli has offered to sell it the remainder. It is one of four joint ventures Magneti Marelli has with Denso.
Midas Europe, a repair shop network that sources say could be acquired by Fiat Auto S.p.A.
The parts of the company offered to Visteon are:
The Powertrain Systems Division, which is understood to be Magneti Marelli's most profitable. It produces engine management systems for gasoline and diesel engines, fuel injectors, the Selespeed robotized manual gearbox system and complete exhaust systems. The division's revenues in 1999 were $1.04 billion. Sales are expected to rise substantially in 2002 as it enters the diesel business with a second-generation common rail direct injection system called MultiJet.
Suspensions Systems, with net revenue of $598.3 million in 1999.
Electronic Systems, including instrument clusters, powertrain control units and telematic modules. Sales were $303.2 million in 1999.
Interior & Body Systems, including heaters and cooling systems but not MM Climatizzazione. Sales last year were $329 million.
Aftermarket & Service Division. The unit reported $808 million in revenue in 1999, but its lubricants business was sold to Doughty Hanson of the United Kingdom this year, and Midas Europe is expected to go to Fiat Auto.
CONQUER, THEN DIVIDE
Last May, Fiat launched a bid to acquire the 30 percent of Magneti Marelli it did not already own. The strategy appeared to be the reverse of General Motors and Ford, which spun off their captive components operations, Delphi and Visteon. But sources now say Fiat planned a similar move all along: first get full control of Magneti Marelli, then sell it.
Magneti Marelli is the world's 22nd-largest automotive supplier and the ninth-largest in Europe, according to data compiled by Automotive News. In 1999, Magneti Marelli reported operating profit of $91.1 million and net earnings of $88.6 million on consolidated revenue of $34 billion.
The Fiat subsidiary employs 25,600 people in 57 plants in 23 countries. It also has 24 research and development centers employing 2,200 engineers and technicians.
Sales to automakers accounted for 75.7 percent of Magneti Marelli's 1999 revenue, or slightly more than $2.53 billion. Sales to Fiat Group companies accounted for 55 percent of its automotive sales.
DEALING TO DENSO
MM Climatizzazione has been offered to Denso, which already owns 25 percent of the division. MM Climatizzazione reported 1999 revenue of $327 million.
Marelli and Denso have joint ventures in air conditioning systems in Italy, the United Kingdom and Argentina.
In March 1999, Denso bought 80 percent of Magneti Marelli's Rotating Machines Division (alternators, starters, windshield wipers and electric fans) for $278.4 million. The remaining 20 percent of that company, which was renamed Denso Manufacturing Italia S.p.A., is also expected to be sold to Denso.
Meanwhile, sources say Fiat Auto wants to buy the Midas Europe service chain, which last year had revenue of $204.6 million.
Sources say Fiat Auto could transform Midas centers into service points for its Alfa Romeo, Fiat and Lancia brands. Midas has 500 centers in Europe and another 500 are slated to be added in the next three years.