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Published: Tuesday, 11/18/2003

Dana suitor may drop its takeover bid after $18 a share called final offer

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

The possibility of a hostile takeover of Dana Corp. dimmed yesterday after the prospective buyer said it will withdraw its offer unless officials of Toledo-based Dana drop their opposition to the deal within two weeks.

ArvinMeritor, Inc. s four-month campaign to seize control of Toledo s largest corporation most likely is nearing an end, a leading auto industry analyst said, even though the auto parts rival yesterday raised its purchase offer to Dana shareholders to $18 a share from a previous $15 a share.

“In some respects, this is a way of saving face and bowing out gracefully on a deal that, based on the street s view, wasn t going to happen from the beginning,” said Joseph Phillippi, president of AutoTrends Consulting in Short Hills, N.J.

A possible sale is not popular in Toledo, where Dana employs more than 700 people and is one of only three remaining Fortune 500 firms. “It s our prestige as a city that s on the line,” Mayor Jack Ford said in July in the hours after ArvinMeritor announced publicly its interest in buying Dana.

ArvinMeritor s demand that Dana officials enter talks with it was the first time such a condition was made for the deal to continue.

But the new offer probably isn t high enough to prompt stock owners to bring pressure on Dana s board of directors to enter talks, Mr. Phillippi said. “I don t think $18 is going to be enough to get a deal done,” he added. Shareholder support for the deal has been waning. Investors holding slightly more than 1 million Dana shares agreed to accept the offer as of Friday. That was down from 2.3 million shares, or 1.5 percent of stock outstanding, just two weeks earlier.

Mr. Phillippi said that even with the increase, a majority of stock owners likely will decide to give management s cost-cutting campaign more time to boost profits and Dana s stock.

Responding to ArvinMeritor s action, Dana officials urged shareholders to delay making a decision until it could review the new offer. Mr. Phillippi said the board is unlikely to change its view that ArvinMeritor s bid is too small, poses regulatory problems, and that financing for the deal is uncertain.

Dana shares fell $1.41, or 9 percent, to $15.24 in a sell-off on the New York Stock Exchange. Nearly 7 million shares, which is eight times the usual volume, exchanged hands. Analysts said that could be a sign that investors believe the deal is dead. Had investors believed the bid was going to be accepted, shares would have risen closer to the offer price, analysts said.

Shares of ArvinMeritor dropped 12 cents to $17.94.

ArvinMeritor released a copy of a letter sent yesterday to Dana interim Chairman Glen Hiner.

Larry Yost, ArvinMeritor chief executive, wrote that $18 was the firm s final offer and that officials hoped to begin negotiations with Dana.

“ArvinMeritor will terminate its tender offer at 5 p.m. ... on Tuesday Dec. 2, 2003 unless your board agrees to begin negotiating a definitive merger agreement in good faith by that date,” Mr Yost wrote.

Mr. Yost, in a written statement yesterday, said that Dana stock was trading at less than $10 a share when ArvinMeritor approached the firm about a possible merger on June 4. “Nothing in Dana s recent performance has indicated that its current stock levels are sustainable as an independent company,” he said.

Lin Cummins, an ArvinMeritor spokesman, said in a phone interview that, “Our primary responsibility is to our shareholders and it is not in their best interest to continue expending corporate resources for an indeterminate period of time.”

When Dana spurned a friendly offer from its smaller rival, ArvinMeritor went public with a $4.6 billion hostile bid July 8. ArvinMeritor twice extended that offer when stock owners failed to respond in sufficient numbers. Dana employs 60,000 people worldwide and had $9.5 billion in sales in 2002. ArvinMeritor employs 32,000 and had $7.8 billion in sales in its most recent fiscal year.

Dana s efforts to fend off ArvinMeritor were helped by the firms most recent financial reports, said Toledo financial executive Michael Wilcox. Dana reported improved earnings, while ArvinMeritor s performance declined, he noted. “The handwriting started to be on the wall,” Mr. Wilcox said.



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