Huayu's Visteon deal seen as boost to profits
Updated: 2013-08-22 11:09
By Michael Barris in New York (China Daily)
Huayu Automotive Systems Co's $1.25 billion deal to buy out Visteon Corp's half-interest in the companies' interior auto parts joint venture will be aimed at strengthening its core domestic operations rather than its global exporting power, an analyst said.
Matthew Stover, a Boston-based auto analyst for Guggenheim Securities, said in an interview on Wednesday that the relatively low value of the products in the deal suggests the transaction is not about boosting global exports.
"I don't think this is about China auto exporting," he said. "They've got a huge cost base and customer base in China - a massive business there. Their aim will be "leveraging their investments on the R&D side and development side."
The acquisition will instantly boost Huayu's profits, Stover said.
"They presumably now have control of the assets and therefore they can optimize the performance and investments to benefit them, exclusively," Stover said. "And I would think in their eyes they have an opportunity to improve the profits in a way they didn't think they had in the past."
Huayu, which is 60 percent owned by SAIC Motor Corp, China's largest domestic auto maker, last week said it agreed to acquire Michigan-based Visteon's share of Yanfeng Visteon Automotive Trim Systems Co. The venture makes door panels, dashboards and visors, among other car-interior components, as well as low-end electronics.
"Most of these assets are in the interiors business and this is an area that Visteon just hasn't been that focused on because the market sector has been so challenged in the Western world," Stover said.
About "60 percent to 70 percent" of Huayu's value is related to the Visteon businesses in the deal, Stover said. By buying out Visteon's half-interest, "they're really just getting full control of an asset they already had full investment in."
The deal comes with SAIC - the Chinese partner of General Motors Co and Volkswagen AG - in the midst of a reorganization aimed at boosting profitability, competitiveness and manufacturing capacity. "This is a step in this process," Stover said.
CEO Timothy Leuliette said the deals are part of Visteon's plan to concentrate on its climate and electronics businesses. To that end, Visteon, the former Ford Motor Co spin-off, also agreed to buy a majority stake in the joint venture's automotive unit, Yangfeng Visteon Automotive Electronics Co, for $68 million.
Visteon also is holding on to its wholly owned interior component business, which it had attempted to sell to Huayu last year as part of a package deal. That deal fell through last July, presumably because Huayu did not want the interiors operation's assets in Europe, where sales are sputtering, Automotive News reported.
Visteon spokesman Jim Fisher has said Visteon's "stated goal is to divest" itself of its remaining interiors operation, according to the Automotive News. In an investment note last week, JP Morgan Chase & Co analyst Ryan Brinkman dismissed as a "potential investment negative," Visteon's "disproportionate" reliance on the interiors division to drive sales in Europe, which is recovering from a deep recession.
The company also said it increased its share buyback program by $875 million to $1 billion. Companies use buybacks to increase earnings per share by reducing the number of outstanding shares.
The deal comes more than six months after Wanxiang Group Co, China's biggest auto-parts maker, won US government approval to acquire A123 Systems Inc.
(China Daily USA 08/22/2013 page2)