Delco Remy Accepts Sweetened Takeover Bid

Autoparts Report, Feb 23, 2001

Delco Remy International Inc. said it has agreed to be acquired by a unit of Citigroup for a sweetened price of $247 million. Citigroup's Court Square Capital Ltd., a major shareholder, will pay $9.50 a share, up from its earlier offer of $8, for the stock it doesn't already own.

Delco Remy is the latest in a string of auto parts makers to be taken private by financial buyers. Late last month, for example, Heartland Industrial Partners merged MascoTech Inc., Simpson Industries Inc. and Global Metal Technologies Inc. to form Metaldyne Corp.

"These stocks are out of favor and valued so inexpensively," said McDonald Investments Inc. analyst Brett Hoselton. "The idea is to buy them and take them public again in three to five years when the market bounces back."

Court Square had indicated on Dec. 22, 2000 that it would make a cash bid for Delco Remy and launched its $8-a-share tender offer on Jan. 11, 2001. Delco Remy said its board determined that the $9.50-a-share bid was in its shareholders' best interest. The tender offer will be extended until midnight Feb. 22. Court Square also will pay $9.50 for any shares not tendered in a "second-step" merger. The company currently owns about 6.6 million, or about 37 percent, of Delco Remy's voting shares and about 6.3 million nonvoting shares that could be converted to voting stock.

The conversion of the nonvoting stock would bring the company's stake to about 53 percent. Affiliates of Court Square are reported to own or have rights to buy about 3.2 million additional shares.

Delco Remy, based in Anderson, Ind., makes starter motors, alternators and other auto components. Analysts said Court Square also may be interested in potential products. "They have some technologies that could be applied to fuel cells or alternative-fuel vehicles," McDonald's Hoselton said. Court Square's offer is "not unreasonable," he said, given Delco Remy's "enterprise" value and earnings before interest, taxes, depreciation and amortization.

Hoselton put Delco Remy's "enterprise value," or market capitalization plus debt minus cash, at roughly 5.6 times its estimated 2000 EBITDA. He said 15 auto-parts suppliers he follows were at a 5.7 percent multiple in 1999, down from 7.4 percent in 1998. Shares of auto-parts makers have been under pressure recently as the slowing U.S. economy led to large cuts in U.S. car and truck production.