Analyst: Magna 'is seriously considering potential purchase' of Chrysler
Bradford Wernle | Automotive News / February 26, 2007 - 12:47 pm / UPDATED: 2/26/2007 11:18 P.M.
 |  |
In a Monday, Feb. 26, report to investors, Hoselton wrote that discussions took place recently between Magna officials and representatives of the UAW regarding the Chrysler group.
According to Hoselton, Magna sources indicated that the company's due diligence "significantly exceeds that of past Magna acquisitions" and added that Magna general managers have visited all Chrysler operations. KeyBanc officials declined to say who their Magna sources were.
DaimlerChrysler Chairman Dieter Zetsche shocked the automotive world by announcing at a Feb. 14 press conference that all options for the future of Chrysler group -- including a sale or spin-off -- are open. Since that date, General Motors and several private equity groups have emerged as possible bidders.
Magna would be the first supplier to throw its hat in the ring.
"We also believe Magna views Chrysler as its opportunity to become the low-cost provider of virtually everything in the automotive supply chain," Hoselton wrote. Such a strategy might "placate competitive fears at the non-Chrysler automaker customers" of Magna, he added.
But Hoselton cautioned that likely resistance from numerous stakeholders of both companies would probably kill a deal.
"Anything to do with the Chrysler rumors, we are not commenting on." said Tracy Fuerst, a Magna spokeswoman. "It is speculation at this point."
Chrysler group spokesman Mike Aberlich said the company does not comment on potential suitors.
Magna ranks No. 3 on the Automotive News list of the top 100 global suppliers with global original-equipment automotive parts sales of $22.80 billion in 2005.
Meeting with UAW
According to KeyBanc's report, Magna officials met with UAW leadership on Jan. 18 and that the UAW was "combative."
UAW officials could not be reached for comment. Hoselton's sources told him the UAW fears letting Chrysler fall into the hands of a foreign company again (Magna is Canadian) or a private equity group.
Bloomberg News reported on Monday, Feb. 26, that Canadian Auto Workers President Buzz Hargrove met with Magna founder Frank Stronach to discuss the Chrysler situation, but that Hargrove would not discuss the talks.
Chrysler and Magna already cooperate on many projects. Magna's subsidiary Magna Steyr assembles minivans and other vehicles for Chrysler in Graz, Austria. Magna operates the paint shop at Chrysler's Toledo Supplier Park plant, where Jeep Wranglers are built.
Magna Steyr is a contract assembler for other carmakers, including General Motors and BMW.
Because the components supply business has become so volatile and unreliable, the company is searching for a source of guaranteed revenue and believes Chrysler might be just the ticket, according to Hoselton's report. Magna also believes the two companies could generate huge purchasing power working together.
Magna believes that automakers control the destiny of suppliers in the current industry climate, and that "Magna could be designed out of a vehicle program at any time," Hoselton writes.
Chrysler's culture is more centralized and bureaucratic, whereas Magna is more entrepreneurial and decentralized, and Magna strategists believe Chrysler could benefit from a more entrepreneurial spirit, he writes.
There are big potential risks standing in the way of a Magna-Chrysler deal. Most notable among those is that GM and Ford account for about 40 percent of Magna's revenues and might not like to see its supplier suddenly become a rival also.
UAW resistance to Magna also could make concessions unlikely.
And Chrysler has a history of roller coaster financial performance, which would present Magna with big challenges, the report states. For those reasons, Magna shareholders might take a dim view of such a deal.
No comments:
Post a Comment