NEWS

Auto-Parts Maker Lear Rejects Call for Split

Friday, May 15, 2015

Lear Corp. on Thursday rejected an activist investor’s call to split the auto-parts maker in two and turned away a request by the United Auto Workers union to raise wages and address alleged safety problems at a Selma, Ala., car-seat factory.

Chief Executive Matt Simoncini, speaking at the Southfield, Mich., company’s annual meeting of shareholders, said directors had determined after an extensive review to keep its automotive electronics and seat-making units together rather than break the company into two separate entities.

“The company is stronger and better able to create future value with both business segments,” Mr. Simoncini said. “We have done an exhaustive analysis and we came to the conclusion that between the negative synergies between the breakup and the tax leakage, the reality is we are better as one.”

A spinoff of the electrical unit that makes lighting controls and remote keyless entry would have resulted in a $400 million tax bill, he said.

In February, activist hedge fund Marcato Capital Management LP called on the $17.73 billion in revenue company to split itself to unlock growth and to repurchase $1 billion in shares. Marcato at the time owned a 4.6% stake in the company.

“We believe a separation could result in a combined value of $145 per share, approximately 45% above the company’s recent share price,” Marcato managing partner Mick McGuire had said in a letter to the board.

But on Thursday, Mr. Simoncini said a split would wind up costing the company not only in dollars but in the harmony between divisions that has spurred better products.

Marcato’s Mr. McGuire declined to comment. Lear previously agreed to a share buyback.

It was the second time Lear faced activist shareholders bent on restructuring the company. In 2007, activist investor Carl Icahn made an offer to buy Lear in a cash transaction valued at $2.9 billion. Lear executives backed the deal but shareholders overwhelming rejected the move at the company’s annual meeting that year. Many thought the offer was too low.

Separately, about 200 UAW members protested outside the annual meeting, held at the company’s headquarters.

Holding a banner reading “Lear: Enough is Enough,” union members drummed on plastic buckets shouting “Lear, Lear Shame on You. What is a worker supposed to do?”

Letasha Irby, a 10-year veteran at the Selma plant, was one of three UAW workers who spoke at the meeting. Ms. Irby, 36, said she earns about $12 an hour and works all the overtime she can get just to make ends meet.

“We need better wages and safer working conditions,” Ms. Irby said. “Many of my co-workers have health problems and the older workers have to endure the heat and cold. There has to be a change and no time like right now…The workers of Selma are people. They are children of god.”

The federal government is currently conducting an investigation into the air quality at the plant, which makes foam cushions for car seats used in Hyundai Motor Co. vehicles.

Mr. Simoncini said the UAW needs to hold a vote if the ultimate aim is to unionize the Selma plant and defended the company’s pay as being above average for that market.

“Our employees have the right to decide if they want to be part of a union,” Mr. Simoncini said. “I am disappointed about the allegations of unsafe working conditions. We work very hard to make sure our plants are safe and we have the air quality in Selma tested and we have published those results on the Internet. I would hope as we go ahead we find some common ground.”

UAW Vice President Cindy Estrada, who was also at the protest, said she is “baffled” why Mr. Simoncini continues to allow the situation to escalate.

“We have had many conversations but they don’t want to solve the issue even though they made $17 billion last year,” Ms. Estrada said. “They just need to fix the problem.”

After the meeting, Mr. Simoncini said he spent 90 minutes talking with UAW President Dennis Williams on Wednesday about the Alabama situation. He reiterated it falls to union organizers to request a union vote at the plant.

 

wsj.com