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Published: Saturday, 2/25/2006

Dana in demand

BY JULIE M. McKINNON
BLADE BUSINESS WRITER

Struggling with financial and regulatory troubles, Dana Corp. has watched a handful of investment firms acquire tens of millions of its shares.

Eight months ago, investment firms with large ownership positions owned 28 percent of the shares of the Toledo auto supplier. But Dana's stock attracted more institutional purchases as its price shrank with the auto industry in decline, the company's moves toward massive restructuring, and word of significantly restated profits.

Five key investment firms owned 47 percent of the company's stock by the end of last year, potentially influencing the future of the city's largest corporation, its employees, and all shareholders.

It was unclear late last week, in trading of more than 90 million Dana shares in two days, whether these big investors were buying or selling their holdings.

Still, given the traditionally passive habits of the four firms holding onto or growing their Dana stakes, value hunting - not a leveraged buyout - is the likely motivation for buying more stock, said Chris Young, director in U.S. research at Institutional Shareholder Services.

"Some people say it's cheap for a reason," he said. "Some people see an opportunity."

Lord Abbett & Co. LLC, Capital Research and Management, Brandes Worldwide Holdings LP, and Donald Smith & Co. Inc. collectively owned nearly 43 percent of Dana's stock by the end of last year.

All have mutual funds or other investment products, and they tout themselves as concentrating on value or long-term investing.

All together, institutional investors own 84 percent of Dana's stock, up from 77 percent or less a year ago, which is much higher than what individual investors like to see, said Ken Janke, chairman of the National Association of Investors Corp.

Institutional investors could become disenchanted with Dana and sell off large chunks of stock, he said.

"It can really have an affect on the market," Mr. Janke said.

In the second half of last year, Dana's stock price floundered from more than $17 a share early on to less than $6 a share as the Dorr Street firm faced mounting financial and regulatory problems. The stock's price has since dipped below $2 a share.

Last fall, the Fortune 500 firm undertook its second major restructuring in four years, which includes selling three business units and paring 700 of 1,950 jobs in the region.

Plus, Dana in December restated earnings back to 2000 by $44 million, or nearly a fifth of what it had previously reported. As a result, Dana is under formal investigation by the U.S. Securities and Exchange Commission to determine whether federal securities laws were violated.

Then, last week, talk of bankruptcy possibilities swirled among credit analysts concerned about Dana's liquidity.

The company's stock price plunged to $1.51 on Friday, the lowest price in more than three decades.

Analysts, before the Friday trading, valued Dana's stock at $5.40 a share, according to the average of 10 analysts polled by Thomson Financial. Their targets ranged from $3 to $10 a share.

Lord Abbett, whose officials declined to comment on their holdings, remains Dana's largest stockholder. It had 20.5 million shares on Dec. 31, or 13.7 percent of the total. The value was about $147 million, less than half what about the same number of shares were worth six month earlier.

Two other investment firms, Capital Research and Brandes Worldwide, increased their stakes in the local firm last year.

In the second half of last year, as the Dana stock price tumbled, Donald Smith & Co. acquired 15 million shares of Toledo firm's stock, giving it a 10 percent stake, valued at $108 million at the end of last year.

On the flip side, Gabelli Asset Management Inc. - headed up by famed investor Mario Gabelli - is winnowing its stake. It started last year with 10.7 million shares, a 7.2 percent of Dana's shares, but was down to 6.6 million, or 4.4 percent, by year's end.

Officials from Capital, Brandes, and Donald Smith declined to comment. Mr. Gabelli could not be reached for comment.

Dana spokesman Chuck Hartlage also declined to comment on the changes.

"As a matter of policy, we do not comment on stock market activity, including changes in share ownership," he said.

Having large concentration eases the way for investors to band together and express unhappiness, said Mr. Young of Institutional Shareholder Services, which could benefit other shareholders.

If those big investors are friendly with the board and management, however, the status quo will continue, he said.

Of the five investment firms, Gabelli is the most likely to take action to force changes at Dana, Mr. Young said.

"The fact that they're decreasing their stake, that makes it less likely for something 'activist' to occur at the company if they're scaling back," he said.

Meanwhile, Dana has had a so-called "poison pill" to ward off hostile takeover attempts in place for 20 years.

It is triggered when a hostile bidder acquires more than 15 percent of Dana stock, allowing other shareholders to buy company stock at half price, which sharply dilutes the unwanted acquirer's stock and forces it to buy even more at market price.

If the investor surpasses that 15 percent mark, it could signal a creeping acquisition, Mr. Young said.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.



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