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Published: Wednesday, 9/5/2007

Dana plans to cancel 150M shares of old stock

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

For Dana Corp. stockholders hoping their shares will be worth something when the firm emerges from Chapter 11, there was little to cheer in the firm's new reorganization proposal.

The company will cancel 150 million existing shares upon emergence from bankruptcy and doesn't plan to compensate their owners, according to the document filed over the holiday weekend in U.S. Bankruptcy Court in New York.

"I'm disappointed more than angry," said Frank Bernieri, a stockholder in Corvallis, Ore. He purchased "several thousand" shares while teaching at the University of Toledo in the 1990s.

He said he didn't think about the stock until March, 2006, when the Fortune 500 auto parts supplier filed for Chapter 11 as a result of skyrocketing raw material costs and turmoil in the U.S. auto industry.

"I literally made a bet on the company to show my support to it and to the city of Toledo ... and lost," he said.

But it isn't uncommon for shareholders to come out empty-handed in Chapter 11 cases, said James J. White, a bankruptcy expert at the University of Michigan law school.

Unless all other categories of creditors are paid in full, bankruptcy laws prevent companies from paying shareholders, he said. "The law is clear," Mr. White said. "If I'm an unsecured creditor and I get 80 cents on the dollar, shareholders can't be paid anything."

Still, some bankrupt firms make concessions to shareholders. Toledo's Owens Corning, which emerged from Chapter 11 last year, gave its shareholders rights to purchase stock for several years at preset prices.

The so-called warrant will have value only if OC shares rise significantly above their current prices, but shareholders were initially expected to receive nothing.

Dana shares, which trade on an over-the-counter basis, fell 11 cents yesterday to 44 cents. Its new stock, the firm said in its bankruptcy-exit plan, would not include a dividend, which it paid for decades before dropping it to a penny before the bankruptcy.

Luq Yacub, an investor in Hartville, Ohio, near Akron, understands the law, but decided that there was a chance Dana creditors would get a full recovery and that shareholders would be eligible for compensation.

He bought more than 700,000 shares at $1 each after Dana filed for bankruptcy.

"Shareholders are being unjustly wiped out for management's poor decisions for the past few years," the investor said.

But documents filed by Dana in the bankruptcy case state that many of the company's problems stemmed from forces beyond the control of management, including decline of vehicle sales at key customers such as General Motors Corp. and Ford Motor Co.

Under the reorganization plan, most classes of unsecured creditors will receive an estimated 60 cents to 90 cents for each $1 they are owed.

They will be paid in cash and new Dana stock. The company will issue up to 100 million shares of stock with an expected value of $20 and $26.04 each, according to the court filing.

Surprisingly, however, the document said the stock is unlikely to initially qualify for listing on a major stock exchange but could trade on the over-the-counter market.

Before being delisted last year after the bankruptcy filing, Dana traded on the New York Stock Exchange.

Mr. White, the bankruptcy expert at UM, was unsure why Dana, a major corporation with more than $8 billion in annual revenues, would not qualify for listing on a major exchange.

Rules of the NYSE, the largest exchange, require listed companies to have 400 shareholders with at least 100 shares each or 2,200 shareholders overall. It is unclear if the company would fail to meet that threshold because stock is being distributed to creditors.

A company spokesman declined to comment on the matter, saying, "It is premature to discuss stock-related matters."

Dana hopes to emerge from Chapter 11 by the end of the year. But first, Bankruptcy Judge Burton Lifland, who is overseeing the case, must rule that creditors and other parties have received sufficient information on which to base a vote.

A hearing on that matter is tentatively set for Oct. 23 in New York.

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.



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