PARIS -- Financial analysts are puzzled by Valeo SA's plan to return money to shareholders. They say the plan clashes with the French supplier's ambition to expand by acquisition.
At Valeo's annual meeting on April 21, the board of directors will ask shareholders for approval to buy back about $335.6 million worth of Valeo shares. The buyback would come barely 18 months after Valeo borrowed almost $520.0 million "for general financing needs" and acquisitions.
"We were all a little surprised by the announcement," says Vincent Courtois, an analyst at French investment bank Fideuram Wargny, of the planned buyback. "The strategy is somewhat obscure," he says.
Valeo maintains that there is no contradiction between the share buyback, done to increase earnings, and its acquisition policy. CEO Thierry Morin says he has enough money this year for another medium-sized acquisition.
Valeo supplies automotive electronics, thermal systems and transmissions.
In January, Valeo bought Johnson Controls Inc.'s French automotive engine electronics division for $436.7 million.
The buyback, coupled with the January purchase, will push the company's debt-to-equity ratio to 68 percent. It was 27 percent on Dec. 31.
This prospect caused Moody's Investors Service to warn that it might lower Valeo's rating. Such a move would make it more expensive for the supplier to borrow money.
Morin says Valeo can live with a debt ratio as high as 90 percent as it generates enough cash to repay its debts easily.
Analysts speculate that Valeo is under pressure by one of its major shareholders to boost its share price.
Valeo's offer is unusually generous at 40 euros a share - about $53.50 at current exchange rates. Valeo was trading at about $45.45 on Thursday, March 17.
Valeo ranks No. 12 on the Automotive News list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $8.88 billion in 2003.