CHICAGO -- Parts maker ArvinMeritor Inc. may follow the lead of two competitors and sell off its replacement parts business to focus on core assets, a Wall Street analyst said on Monday.
More merger deals have been struck in the auto supply sector this year than in all of 2003 or 2002, Merrill Lynch analyst John Casesa said in a research report dated Friday.
Those assets have largely been sold to financial buyers, and a divestiture by ArvinMeritor could bring the same bidders to the table again, a source in the auto industry said.
"Given the pickup in transaction activity in the automotive supplier sector, and given the interest of at least two private equity firms in the automotive aftermarket, we believe it is not unlikely that ArvinMeritor will explore a divestiture of its light vehicle aftermarket business," Casesa wrote.
Private equity firms Carlyle Group and Cypress Group have shown a significant interest in the replacement parts sector, also known as the aftermarket, he said.
New York-based Cypress, which recently agreed to buy the aftermarket business of parts maker Dana Corp. for about $1.1 billion, may hold a golden ticket in the case of an ArvinMeritor auction.
ArvinMeritor's light vehicle aftermarket business, which makes exhaust systems, shock absorbers and other products, could mesh well with Dana's replacement parts business, the auto industry source said -- meaning Cypress might have the chance to combine the businesses of two bitter rivals under its ownership.
Dana successfully fought off a $2.7 billion unsolicited takeover attempt by ArvinMeritor last year, and put its aftermarket parts business on the block just weeks later.
Washington, D.C.-based Carlyle, also an active shopper in the sector, bought the auto parts business of New Jersey-based UIS Inc. -- which also makes candy bars and patio doors -- in May 2003.
Merrill's Casesa expected the auction for another asset, the parts business of Cooper Tire and Rubber, to wrap up "in the coming weeks." That business may be worth $1.2 billion to $1.3 billion, he said.
Casesa believed that ArvinMeritor's light vehicle aftermarket unit would be valued at $450 million to $500 million. The business is currently battling declining volumes and weak pricing.
A spokeswoman for ArvinMeritor, which recently named Charles McClure as chairman and chief executive to replace the retiring Larry Yost, declined to comment on the Merrill Lynch report.
"We don't comment on speculation, but we are always evaluating our businesses," ArvinMeritor spokeswoman Krista McClure said.