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Published: Sunday, 8/24/2003

Numerous tactics available in fight to stay independent

BY JULIE M. McKINNON
BLADE BUSINESS WRITER
A welding process is tested in a lab operated by Dana Corp., which has nearly completed a restructuring. A welding process is tested in a lab operated by Dana Corp., which has nearly completed a restructuring.
VIA BLOOMBERG NEWS Enlarge

With four days left until ArvinMeritor Inc.'s $15-a-share tender offer to Dana Corp. investors expires, the Toledo auto supplier could use any number of tactics to try to stay independent, experts say.

It could increase its once lucrative quarterly dividend by as much as it can afford and could include stock to encourage shareholders not to tender shares to the smaller Troy, Mich., rival.

To further stymie ArvinMeritor, Toledo's largest Fortune 500 firm could make a small but strategic acquisition that would increase its value. It also could sell off a portion of the business, changing its structure.

Then again, considering Wall Street's tepid reaction to ArvinMeritor's bid, Dana may not have to do anything except perhaps gird for a drawn-out battle, some experts said.

Because ArvinMeritor has yet to secure the at least $3.7 billion it needs in financing, offering more per share - and, in turn, attempting to gain more credibility - seems unlikely, some said.

“ArvinMeritor's really fighting an uphill battle,” said Efraim Levy, an equity analyst with S&P Equity Group in New York. “It will be a hard deal to pull off. Not impossible, but a hard deal.”

ArvinMeritor's tender offer expires Thursday, and Dana directors have recommended shareholders reject it. The Troy auto supplier has said the offer probably will be extended until various conditions, including getting financing, are satisfied. ArvinMeritor has said it will announce before 9 a.m. Friday if it will extend the offer.

Other conditions to ArvinMeritor's offer, valued at $4.6 billion, include the tender of more than two-thirds of Dana's stock, removal of anti-takeover measures, and regulatory approval.

ArvinMeritor, a Dana shareholder, has threatened to elect pro-merger directors to the Toledo firm's board next year. The new directors could then eliminate anti-takeover measures and complete a “friendly” deal.

Big Three customers are likely to weigh in with their opinions, either telling ArvinMeritor to back off because they don't want such a large supplier or telling Dana to cooperate because a combination would help cut costs, said one industry insider who declined to be identified. The combined company would be one of the five biggest in the world, with $17 billion in sales.

If ArvinMeritor doesn't consummate or extend the offer this week, reviving its pursuit later is not very likely, one industry expert said. Dana will not be affordable when the company's nearly complete restructuring improves profitability and raises the stock price, said David Cole, president of the Center for Automotive Research in Ann Arbor.

ArvinMeritor's position aside, Dana remains in play, and investment bankers probably are trying to entice U.S. and European companies with a potential deal, said Chester Devenow, who led the growth of another Fortune 500 Toledo parts supplier. The former Sheller-Globe Corp. was acquired in a leveraged buyout in 1986.

Mr. Devenow, a proponent of Dana fighting off ArvinMeritor's bid, said the Dorr Street firm may be able to spin off part of the business to shareholders.

Dana also could raise its dividend from the current 1 cent, he said. As part of the largest restructuring in Dana's nearly 100-year history, the company slashed its quarterly dividend, which hadn't been reduced or missed since 1936, from 31 cents a share.

Other potential options include paying a special dividend, increasing the dividend for a fiscal quarter, or initiating a share buyback, said lawyer Bruce Cheatham, who specializes in mergers and acquisitions, along with securities, for Winstead, Sechrest & Minick in Dallas.

For now, Dana officials have responded to ArvinMeritor lawsuits with some of their own, and they are telling shareholders that markets are improving and a higher stock price is coming, said David Siino, an analyst with Gabelli & Co. Inc. of Rye, N.Y. The firm advises one of Dana's largest institutional investors, headed by the famed Mario Gabelli.

“It makes people less skeptical when they see the end markets picking up,” said Mr. Siino, who estimates Dana will have $2.20 a share in earnings next year. “It looks like they're going to try to wait it out and stick to their knitting and stick to their story that they're a better company independent,” he added. “Dana's management has a valid case.”

Dana's management has dug in, and ArvinMeritor isn't likely to raise its bid, although it could extend the offer, said an official from a Dana institutional shareholder who declined to be identified.

(In counterclaims last week to a lawsuit ArvinMeritor filed in U.S. District Court in Lynchburg, Va., Dana asked the court to make the Troy company file disclosures about financial, anti-trust, and other issues and extend the tender offer so shareholders can analyze them. ArvinMeritor said the counterclaims, which ultimately seek to halt the tender offer, are without merit.)

Management isn't going to want to harm Dana by selling off core assets, which is one way to defend against a hostile takeover, although they may consider a strategic acquisition that would put the company out of ArvinMeritor's reach, the official said.

ArvinMeritor's lack of financing and need to pile on debt make the existing offer shaky, boosting Dana's case, he said. “I don't think they really need to do anything,” he said.

Not everyone is concerned about ArvinMeritor's lack of financing in what could be a long fight.

A portfolio manager for another Dana institutional shareholder, who also declined to be identified, said he understands why ArvinMeritor would not want to pay fees to have financing available for a deal that eventually could change.

Still, he said, tendering shares to ArvinMeritor is out of the question given the recent performance of Dana's stock. Since ArvinMeritor announced its plans last month, Dana's stock has hovered near or more often above the $15-a-share mark.

Shareholders, meanwhile, must decide whether Dana's restructuring will present them with better returns than ArvinMeritor's bid, said Mr. Cole of the Center for Automotive Research.

Dana should succeed with the restructuring and getting the stock above ArvinMeritor's $15-a-share offer, he said.

“Probably the bottom line is really what the shareholders believe,” Mr. Cole said.



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