TURIN, Italy - Visteon Corp. has ended negotiations to buy a majority of Italian supplier Magneti Marelli S.p.A. from Fiat S.p.A. Fiat plans to sell its wholly owned supplier division piece by piece, sources say.
Visteon, spun off by Ford Motor Co. last June, ended talks with Fiat because of its own financial problems and a failure to agree on a price, according to sources close to the talks.
'The difference between what was requested and what Visteon offered was far too much, so talks ended,' said one source. Fiat wanted about $2.8 billion for almost 70 percent of Magneti Marelli, including most of its key business units.
But Visteon, the world's second-largest auto supplier behind Delphi Automotive Systems Corp., would pay no more than $2.25 billion, according to the source. Magneti Marelli is the world's 22nd largest supplier and the ninth largest in Europe, according to data compiled by Automotive News.
In addition, Visteon's finances worsened as talks proceeded. The U.S. supplier's shares plunged in value by nearly 25 percent after it warned in December that fourth-quarter earnings would be lower than expected. Visteon has been hit by production cutbacks announced by automakers such as Ford and DaimlerChrysler.
But Visteon's profit warning especially worried analysts. According to a Goldman Sachs research report, Visteon 'is coming up short on cost reduction, mix improvement and price realization from its primary customer (Ford).'
Visteon spokesman Craig Miner said it is against company policy to comment on any possible merger or acquisition activity. However, he said Visteon still is interested in growing through acquisitions.
Several offers pending
Fiat has received several offers from different suppliers for various Marelli divisions.
Fiat hopes to complete the breakup by the middle of this year, raising up to $2.8 billion in cash. The four Magneti Marelli operating divisions for sale are:
1. Powertrain Systems, understood to be Marelli's most profitable unit and the most sought after. The division produces engine management systems, fuel injectors, the Selespeed robotized manual gearbox system and complete exhaust systems.
2. The shock absorber activities of Magneti Marelli's Suspensions Systems unit.
3. Electronic Systems, including instrument clusters, powertrain electronic control units and telematic modules.
4. Interior and Body Systems, including heaters and cooling systems. In addition, Marelli's 70 percent of its Automotive Lighting joint venture with Robert Bosch GmbH is for sale, the source said.
Fiat S.p.A. is expected to retain only three small portions of Magneti Marelli:
1. The Midas Europe service chain, which is expected to go to Fiat Auto.
2. Magneti Marelli's 50 percent of the VIASAT joint venture with Telecom Italia, Europe's competitor to General Motors' OnStar.
3. The suspension activities Fiat Auto spun off in 1998 and 1999 to create the basis of Marelli's new Suspensions Systems division.
Denso buys division
In late November, Fiat S.p.A. agreed to sell Marelli's Thermal Systems division to Japan's Denso Corp. for $465 million. The division supplies air conditioning and engine cooling systems and cockpit modules.
In 1999, Marelli reported an operating profit of $100.5 million on consolidated revenues of $3.7 billion. It employs 25,600 people in 57 plants in 23 countries and also has 24 r&d centers employing 2,200 engineers and technicians.
Sales to carmakers accounted for 75.7 percent of Magneti Marelli's 1999 revenues, or slightly more than $2.79 billion.
Sales to Fiat group companies accounted for 55 percent of its sales to carmakers. In May, Fiat began buying the 30 percent of Magneti Marelli it did not own already, a purchase it completed in October.