Lear shares jump on prospects of better deal

By Doris Frankel and David Bailey
Tuesday, February 6, 2007; 5:39 PM

CHICAGO (Reuters) - Lear Corp. (LEA.N) shares rose as much as 6.4 percent on Tuesday on expectations the U.S. auto parts maker could command a higher price than the $36 per share activist investor Carl Icahn has offered.

Icahn, who holds more than a 16 percent stake in Lear, disclosed on Monday that he offered to buy the remaining shares in the company that he does not already own. The deal would be valued at about $2.43 billion based on 67.4 million shares outstanding as of the last quarterly filing.

But the stock jumped to above $41 on Tuesday on the New York Stock exchange, reaching its highest level since August 2005, on hopes Lear might command a higher price.

"Some of the analysts have said that Lear could be worth as high as $60," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

Credit Suisse analyst Chris Ceraso upgraded Lear to "neutral" from "underperform" and said in a note that market assumptions may have changed even if Lear still faces pressure from lower customer production of key sport-utility vehicles.

"And perhaps those assumptions have been nudged higher by the not-so-invisible hand of private equity players like Mr. Icahn," Ceraso said.

Lear plans to sell its remaining auto interiors business assets to financier Wilbur Ross' International Automotive Components Group joint venture in the first quarter, leaving it focused on seating and electronics.

"The Lear offer, in our view, is the most visible sign that private equity may now be willing to consider non-distressed assets with decent balance sheets," J.P. Morgan analyst Himanshu Patel said in a note.

Patel said American Axle & Manufacturing Holdings Inc. (AXL.N), ArvinMeritor Inc. (ARM.N), Visteon Corp. (VC.N), BorgWarner Inc. (BWA.N), Cooper Tire &. Rubber Co. (CTB.N) and maybe even Goodyear Tire & Rubber Co. (GT.N) might make interesting leveraged buyout possibilities.

Icahn made his offer to buy Southfield, Michigan-based Lear through affiliate American Real Estate Partners LP (ACP.N).

Pzena Investment Management, which owns 11.1 percent of Lear, said in a letter on Monday it would oppose the offer as well below what the company is worth.

"Because of what Pzena said, investors obviously think that the company will be sold at a higher level than $36," Lefkowitz said.

The rise in Lear's shares was accompanied by active options trading. For example, March calls with $45 strike prices have traded 293 times at the end of the session.

"The buyers of those calls are anticipating a much higher bid for the company to come in within the next six weeks," Lefkowitz said.

Lear shares were up $1.98, or 5.12 percent, to end at $40.62 Tuesday on the Big Board.

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