Lear to accelerate stock buy-back, but large investors want more
Feb 12, 2013 (Menafn - Detroit Free Press - McClatchy-Tribune Information Services via COMTEX) --Lear Corp., the Southfield-based supplier of auto seats and interior systems, is facing pressure from two of its largest investors who want it to use its cash to raise its stock price and reward shareholders.
Investors Marcato Capital Management and Oskie Capital Management -- who together hold 5.6% of Lear's shares -- today sent a letter to Lear's board of directors outlining their concerns. The two funds want Lear, which has said it will buy back 1 billion of its shares, to buy back 2 billion of stock. In addition, Marcato and Oskie want Lear's board to review its capital spending, acquisition and divestiture strategy to improve profitability.
In a nutshell, the investor groups think Lear has too much cash and some new blood on the board would work harder to put use that cash more productively.
The investors say Lear is undervalued. In addition to stockpiling cash, the investors are concerned that Lear will spend it on "costly acquisitions or invest in other low-return projects."
The supplier responded with a statement saying, "We are focused on value creation for all of our shareholders. We have a balanced strategy of investing in our business while maintaining a strong and flexible balance sheet and returning cash to shareholders."
Lear stock jumped Friday after Marcato and Oskie first made public plans to nominate new directors at the next annual meeting who would be more aggressive in returning more cash to shareholders.
Lear stock closed at 53.98 on Friday but at one point hit 54.99. It is trading around 54.14 but has traded as high as 54.98 today. It traded at 54.19 at 2 p.m. today.
The investment firms say they have repeatedly expressed concerns, the most recent being a meeting with management on Wednesday to offer suggestions on how to boost shareholder value in the belief their stock is undervalued. One suggestion was to use some of the excess cash to repurchase stock.
On Thursday Lear said it would buy 600 million of its own shares this year and increase the quarterly dividend to 17 cents a share.
"The Board of Directors of Lear also accelerated the return of capital to shareholders through the recently announced 21% increase of the Company's quarterly cash dividend. This is in addition to more than 500 million of share repurchases completed over the last two years," Lear said in a statement today, referring to the Feb. 1 decision.
But the investor group wants an immediate commencement of a 2 billion share repurchase program and a review of the capital expenditure budget and Lear's acquisition and divestiture strategy.
In today's letter, the investors say, "It is our contention that the Company's recent announcement -- to accelerate the pace of its existing stock repurchase program and raise its dividend -- is insufficient."
The investors describe Lear as "dramatically overcapitalized" for a company that has reduced its capital costs, is in a better position in terms of its pension liability, has favorable tax advantages and free cash flow and which has diversified geographically and in terms of its customer mix. The contention is Lear's large cash balance is distorting the value of Lear's core seating business.
"We believe that it is important to add new Board members who will bring focus and urgency to the implementation of potential value-creating initiatives," the group said in the letter to Lear.
And the investors again request further meetings with the board.
Contact Alisa Priddle: 313-222-5394 or apriddle@freepress.com
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