ArvinMeritor's attempted buyout of Dana has raised a red flag from one automaker that buys parts from both companies. The fear is that a Dana takeover would leave the automaker saddled with a large but financially distressed giant supplier unable to deliver promised savings.
"Mergers over the last five years have not delivered the cost benefits the supplier companies had hoped for," said a source at the automaker, who asked that neither he nor his employer be identified.
The balance sheets of ArvinMeritor and Dana are highly leveraged with debt. Combined, that debt level would be among the highest in the auto parts industry.
The threat of heightened financial risk is part of Magliochetti's campaign to deter his shareholders from accepting ArvinMeritor offer of $15 per share. The total cost is more than
$4.4 billion in cash and debt assumption, plus financing.
ArvinMeritor CEO Larry Yost is confident he can manage that debt and obtain financing, and is projecting $200 million in savings. And he says he can sell off Dana units to raise cash.
Magliochetti said that Dana, of Toledo, Ohio, has installed defenses against its rival, but he declined to discuss them. He would not say if he has a white knight to initiate a friendly takeover of Dana.
Industry analysts say Dana has strong ties to Eaton Corp., and some have suggested that the Cleveland-based company could become a friendly bidder. But Eaton has a high debt-to-equity ratio, making a competing bid difficult.
Asked if he would sell a key Dana business unit to deter ArvinMeritor, Magliochetti said he "would not destroy the company to stave off a suitor.'' He also said he was unlikely to use a so-called Pac Man defense, in which Dana would turn the tables and try to acquire ArvinMeritor because the combination wouldn't make any more sense that way.