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Published: Saturday, 7/10/2004

Toledo's Dana to sell Wix and other parts firms for $1.1 billion in cash

BY JULIE M. McKINNON
BLADE BUSINESS WRITER

Slicing its revenues by a fourth, Toledo's largest company, Dana Corp., said yesterday it would sell most of its replacement-parts operations for $1.1 billion in cash to a private New York buyout group.

Neither the sale nor the buyer was unexpected. Dana announced in December it wanted to sell the business unit, and in recent weeks, Cypress Group was named as one of the prospective buyers by news services. Cypress owns auto-parts maker Lear Corp., among other firms.

The deal is expected to be finalized by the end of September. It will shave off about a quarter of Dana's $10.1 billion in annual sales, not to mention 13,000 of 59,000 employees and 52 facilities outside northwest Ohio and southeast Michigan from the Fortune 500 company.

Dana, a major independent vehicle-parts maker, instead will focus on selling products to automakers. It plans to use the proceeds to reduce its debt, reinvest in its core business, and add to its pension plans.

The sale includes Dana's Wix filters, Raybestos brakes, some chassis parts under the Spicer name, and Beck/Arnley parts-importing business.

To be kept by the Toledo firm are its Perfect Circle piston rings, Clevite engine parts, and Victor Reinz gaskets, and replacement lines sold to retailers like Napa and Carquest.

"Dana will be a more streamlined company that is better focused on delivering world-class component and systems solutions to our customers in the automotive, commercial vehicle, and off-highway markets," Mike Burns, Dana's chairman and chief executive, said in a statement.

Wall Street welcomed the news yesterday, sending Dana's stock price up to $19.50 a share on the New York Stock Exchange before closing at $19.16 a share, up 74 cents for the day. Analysts and experts had largely commended the planned sale because it will allow Dana to concentrate on its core business.

Though analyst David Siino expected up to $1.2 billion for the replacement-part operations sale, he approved of the deal, saying it was in line with similar transactions.

"It was a good price," said the analyst at Gabelli & Co. Inc. of Rye, N.Y., which advises one of Dana's largest institutional shareholders, Gabelli Asset Management Inc.

"Strategically and financially, I think it's a good deal," he said.

Some of the businesses being sold, including Raybestos, are part of the often-questioned $3.9-billion Dana acquisition of the former Echlin Inc. in 1998.

Some experts say that debt-laden purchase hammered Dana's stock price, which never has come close to the $61.50-a-share level it had before the Echlin deal was announced, and helped open the firm up to a hostile takeover attempt last year by fellow supplier ArvinMeritor Inc. of Troy, Mich. The takeover effort ultimately failed.

Other former Echlin businesses previously have been sold, although Dana still owns operations selling $1 billion worth of those parts annually.

Proceeds from the replacement-parts sale, officials said, will be used to continue chopping Dana's long-term debt, which was $2.6 billion at the end of March and is rated below investment grade; to contribute to the company's pension plan, which was potentially underfunded by $574 million at the end of last year, and to invest in the company's core businesses, perhaps by making acquisitions or joint-venture deals.

If the proceeds are used to reduce debt, Mr. Siino said, it could annually result in an additional 30 to 40 cents in earnings per share, a boost for shareholders. He suggested the company pay off debt or shore up its pension before considering acquisitions.

Besides wisely keeping parts more often sold directly to automakers, the firm has sold lines most attractive to buyout firms, said analyst Joseph Phillippi, president of AutoTrends Consulting in Short Hills, N.J.

Wix filters, for example, are historically a solid product line with good cash flow, he said. Engine parts, though, are not replaced as often as they used to be and require a lot of capital to make, he said.

The Cypress Group, which manages two private equity funds with more than $3.5 billion, has been looking at various auto-related companies, said Mike Finley, managing director.

Cypress owns a range of companies, including cat food maker Meow Mix Co. and cabinet builder Republic National Cabinet Corp.

"We buy companies to grow them," Mr. Finley said. "That is what we do."

The customer-focused Dana businesses have products with leading market positions and strong brand names, and Cypress supports the strategic plan its management team has put in place, Mr. Finley said.

Terry McCormack, Dana's president for replacement parts, has agreed to remain with the as-yet unnamed company, along with other managers.

Employment wise, the sale will have little effect on Dana's operations in northwest Ohio and southeast Michigan other than the loss of a handful of managers.

However, Dana will slip substantially on the Fortune 500 list. It ranked 193 this year, but its new annual sales level likely will place it higher than No. 250. It likely will remain considerably larger than Toledo's second largest firm, Owens-Illinois Inc.

Dana put the replacement-parts businesses up for sale late last year, soon after ArvinMeritor dropped its hostile bid for the 100-year-old Dorr Street company. But the local firm had long searched for a way to handle those units, including weighing a joint venture with ArvinMeritor in 2001.

Cypress was one of two buyout firms reported to be interested in Dana's replacement-parts businesses. The other was the Carlyle Group, another large private equity firm.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.



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