DETROIT -- Visteon Corp., after 12 years of hemorrhaging cash, the construction of a major southeast Michigan headquarters, a debt-clearing bankruptcy and months of boardroom drama, is a business in flux after the ouster of CEO Don Stebbins.
The destiny of Ford Motor Co.'s spun-off parts unit seemed all too inevitable after activist board members spent more than a year demanding that a reluctant Stebbins unload the company's valuable Asian assets.
After Visteon failed to acquire a 30 percent stake in its South Korean joint venture Halla Climate Control Corp. this month, Stebbins -- and the board -- agreed his time at the supplier was over.
Stebbins' departure is the finale of a nearly two-year war between Stebbins and board members with close allegiance to some of the supplier's largest bondholders, two sources familiar with the matter said on the condition of anonymity.
Breakup may be ahead
Visteon's new CEO, Tim Leuliette -- a vocal advocate of private equity's stake in the auto supply chain -- will be charged with the job that Stebbins, 54, was unable to accomplish: return value to the bondholders, which could mean a breakup and auction of assets, experts say.
He'll have help from new board members, including former EaglePicher CEO David Treadwell.
Leuliette, 62, declined to be interviewed for this story. Stebbins could not be reached.
During Visteon's 16-month Chapter 11 bankruptcy, ending Oct. 1, 2010, Stebbins and bondholders drafted a plan to scrub $2.1 billion in debt and provide the roughly 40 bondholders with an 88 percent ownership stake for $1.25 billion.
Visteon also rejected a $1.25 billion bid during bankruptcy for its seating and interiors business from competitor Johnson Controls Inc. of Milwaukee.
By May 2011, Stebbins, chairman at the time, and the rest of the board reached an impasse with the threat of a proxy battle looming. The infighting led to the resignation of longtime board member William Redmond Jr. on May 20, 2011. Redmond is CEO of General Chemical Performance Products of Parsippany, N.J.
'No winners'
"There are no winners in this 'fight,' with the biggest loser being our collective shareholder value, given the distraction of this, and its toll on management and the board's time," Redmond said in the letter after his resignation.
"We are at this place as a result of poor handling of the shareholders by management first, and the majority of the board second, by not causing responsiveness and transparency to be management's mantra with shareholders versus disregard and disingenuous lip service."
But the proxy fight was sidestepped when the board agreed to allow the activist investor group Alden Global Capital of the Cayman Islands to place two members on the board by replacing Redmond and adding a seat.
Review of its options
Visteon hired New York advisory firms Goldman Sachs Group Inc. and Rothschild for a strategic review of its options, the company said on Oct. 17, 2011. Leuliette and other independent board members pressed Stebbins to interview banks to help streamline the supplier, sources told Bloomberg.
While Stebbins remained at the helm, Visteon CFO William Quigley III involuntarily resigned on Oct. 31. He was replaced by former Kmart Corp. and Federal-Mogul Corp. CFO Martin Welch.
In November 2011, Visteon announced a nonbinding agreement to sell the majority of its global interiors business to its Chinese joint venture, Yanfeng Visteon Automotive Trim Systems Co. The joint venture is between Visteon and Huayu Automotive Systems Co., a subsidiary of China's largest automobile maker, government-owned Shanghai Automotive Industry Corp.
But sources said late last year that SAIC and Visteon couldn't agree on a price for the business.
Asset sales
In February, Visteon sold its lighting unit to India's Varroc Group for $92 million.
It also sold and leased back space at its suburban Detroit headquarters in April in an $81.1 million sale to New York real estate firm Sovereign Partners. The 889,000-square-foot campus was built in 2004 at the cost of $300 million.
For months, analysts have speculated that Visteon would, and should, make its biggest play to acquire the remaining shares of its Korean joint venture Halla. On July 4, Visteon said it planned to offer $805 million to acquire the 30 percent stake in Halla that it didn't already own.
But it also said at the same time that its deal to sell its remaining interiors business to Yanfeng had fallen apart. Visteon's interiors business generated $2.16 billion in revenue in 2010.
Halla deal rejected
Things got worse for Visteon's future. On July 23, the Halla deal was rejected after Korea's National Pension Service, which holds an 8 percent stake in Halla, rejected Visteon's offer.
"Considering the corporate value and future growth prospects of Halla Climate, we believe not participating in the tender offer would be better for long-term returns," the National Pension Service said in a statement.
Meanwhile, the supplier continues to struggle to return the business to stable income levels. Visteon closed its second quarter on June 30 with a net income of $75 million, after losses of $32 million and $26 million in the immediate prior quarters.
Visteon shares, as of Monday, were down more than 43 percent to $40.93 since going public again in January 2011. The shares continued to fall today, down another 2.5 percent to close at $38.88.
The failure for Stebbins and his team to acquire the rest of Halla led to his departure, sources said.
'On to Plan B'
"Stebbins is a great guy and a class act, and he did what he thought was going to give shareholder value, but it didn't work," Fred Hubacker, executive managing director at advisory firm Conway Mackenzie Inc. of suburban Detroit. "Now, it's on to Plan B."
With Leuliette in as interim CEO and the addition of two new board members with deal experience, sources believe the supplier will seek to break up and sell the company in one or a series of deals.
Leuliette was hired on to lead the suburban Detroit supplier Dura Systems in 2008 after it emerged from bankruptcy. He led its sale to private investment firm Patriarch Partners of New York in 2010.
He has experience in the Asian market, where more than 60 percent of Visteon's business is done, including his China-centric investment firm Andus-Leuliette. A year ago, China Auto Parts and Accessories Capital Holding Ltd. of Hong Kong acquired the stake in Andus-Leuliette previously held by The Tempo Group Inc., a Beijing auto supplier.
'A caretaker'
"Leuliette is a caretaker," a source said. "It has to make people wonder if the main shareholders are saying it is time to hang it up altogether. Visteon has been a never-ending German opera and waiting for the next shoe to drop. Now it may happen."
The new board members -- Treadwell and Francis Scricco -- were added on Aug. 13, the same day as the Stebbins departure announcement.
Scricco most recently was senior vice president of manufacturing, logistics and procurement for Avaya Inc. until his retirement in October 2008. Treadwell is chairman of C&D Technologies Inc., a position he has held since April.
Treadwell is the former CEO of suburban Detroit supplier EaglePicher. He led EaglePicher out of bankruptcy in 2006 as COO and pared several of its divisions upon becoming CEO later that year.
Mando mixes it up
Further fueling the speculation is that before Stebbins' departure, Korea parts supplier Mando Corp. acquired the National Pension Service's stake in Halla on Aug. 7.
The move immediately triggered speculation that the supplier was seeking to acquire Visteon, or its shares of Halla.
Halla was founded as a joint venture between Mando and Ford before Mando sold its stake to Visteon in the 1990s.
More than 60 percent of Halla's $2 billion revenue comes from Hyundai Motor Group. Mando is led by a cousin of Hyundai Motor Chairman Chung Mong-koo, Reuters reported.
But a source familiar with the situation said Mando isn't a player for Visteon or its stake in Halla because Mando can't afford it.
Visteon's stake in Halla is worth about $1.5 billion to $1.6 billion, according to analysts. Visteon's market capitalization is currently $2.2 billion.
Mando's market cap is $2.6 billion. It generated net income of $148.4 million in 2011 on revenue of $2.6 billion. Mando had free cash flow of $45.4 million at the end of last year.
Visteon declined to comment on speculation of Mando or any deals.
But two sources said that a deal is looking like the embattled supplier's only option.
"No one has any confidence in [Visteon] or their financial position," a source said. "They can't dance with the other guys in climate control, like Valeo [SA of France] or Denso [Corp. of Japan], and they have to be considering a breakup of the company."
