Dana, Toledo's largest company, emerges from bankruptcy

2/2/2008

Emerging from nearly two years of bankruptcy, Toledo s largest corporation yesterday named a new leader and began offering new public stock that didn t perform as well as had been expected.

Dana Corp., a Fortune 500 firm based on Dorr Street, is much leaner than it was before its Chapter 11 case, which has some industry analysts questioning whether it will be able to survive long term.

The automotive supplier yesterday said it had exited bankruptcy and named John Devine, 63, as its chairman and acting chief executive officer. He is a former chief financial officer of both General Motors Corp. and Ford Motor Co.

Mr. Devine replaces Mike Burns, 55, who led Dana since March, 2004.

The Dana people should feel very good the city of Toledo should feel good about our emergence, Mr. Devine said. Not too many companies are doing that these days. In fact, it s very few and very far between.

The new company, backed by $2 billion in credit, will be known as Dana Holding Corp. It had $8.5 billion in 2006 revenues and operates in 26 countries. It was one of several major automotive parts makers that have been in bankruptcy recently, and it emerges amid troubled U.S. auto sales and a struggling U.S. economy.

The bulk of its business is from Ford, GM, and Chrysler LLC.

The firm s old stock was canceled and its new stock, trading under the ticker symbol DAN on the New York Stock Exchange, had been projected to open at about $22 a share. Instead, it closed on its first day at $12.70 on volume of 229,300 shares.

Getting leaner

During its bankruptcy, Dana sought to pare its holdings and operations to its core business. It has sliced costs or added revenues of $440 million to $475 million annually.

It shed 9,000 jobs globally, including 7,000 in the United States and 800 in the Toledo region. It has 35,000 employees overall. It sold business units and adjusted production.

Joseph Phillippi, an industry analyst with AutoTrends Consulting in Short Hills, N.J., said there is no doubt Dana has emerged as a much smaller company with a much tighter cost structure.

He wondered whether the new company was in a better position to compete. American Axle & Manufacturing Holdings Inc. and Magna International Inc. have hurt Dana in its business operations, he said.

These guys are a lot bigger than [Dana], so it s going to be tough, Mr. Phillippi said.

Delayed announcement

The local firm completed its process to emerge from bankruptcy protection at about 10:30 p.m. Thursday, on the day of its self-imposed deadline. But it waited until yesterday to announce it.

The business will concentrate on making axles, driveshafts, and other under-the-vehicle components. It sold factories that made ancillary auto products such as tubing and hoses.

Don Hicks, a safety and environmental manager at Dana s automotive frame plant in Hopkinsville, Ky., said he couldn t be happier with Dana s new direction and new leadership team.

I think it s a very positive move for the corporation, he said. I think with new leadership and the new board of directors, it s not so much going to be the good-old-boy nature that it has been, but some people who have been in the automotive business their whole lives.

The company, facing cash shortages and a tough industry, filed for Chapter 11 on March 3, 2006, in New York City. It had restated its financial performance two months earlier because of accounting errors and then missed making interest payments on a bond issue.

Mr. Devine, who is living in a Dana guesthouse near its headquarters, said, The real message today is that [Mr. Burns] is leaving. We wish him well. We re thankful for his contribution.

The appropriate thing

Mr. Burns guided Dana into bankruptcy and back out again. He will stay on through an undefined transition period and will receive an estimated $6.75 million in compensation, as approved by creditors and the bankruptcy court.

His decision to step down surprised some observers. In December, when the company announced a new high-powered board of directors, it said Mr. Burns would remain as CEO.

We ve gone through a major restructuring of the company, and we ve fundamentally changed a number of things, Mr. Burns said yesterday.

There s a time when it s time for the current people that we ve brought in and new leadership to take it to a different level, and this is the time. If you re going to do something like this, do it when you emerge. That s the time to do it. So it s the appropriate thing to do.

Creditors get stock

With the bankruptcy reorganization plan, creditors with $3 billion in claims are to recover between 72 percent and 86 percent through distribution of new stock. However, with the lower opening price of the stock the recovery amounts will shrink, unless the creditors hang on to their shares and hope they increase in value.

Mr. Burns, though, said, You re at the first day, [the stock] is fairly thinly traded, and you can t draw any conclusions. It s based on a market valuation, and there are no adjustments.

About 150 million shares of the old stock ceased trading over the counter on Thursday, at less than a penny a share. It had traded for more than $20 a share just four years ago and at nearly $60 per share in 1998.

Investors, including many Dana retirees, lost substantial sums of money. Some retirees said their holdings dropped so much that it ruined their nest eggs.

Employees already know the cuts and restrictions that will affect them.

New contracts

Perhaps the key development that allowed Dana to emerge from bankruptcy occurred last summer when the United Auto Workers and the United Steel Workers negotiated new contracts and a separate account for retiree health care, expected to save $100 million a year.

It included a two-tier wage system at union-covered facilities, and the health fund allowed the firm to erase a $1 billion obligation to provide health care to retirees. The fund was financed with a $750 million contribution from Dana and its new creditors, such as Centerbridge Capital Partners LP.

The deal froze the wages and pensions of unionized employees at current levels and called for new hires to come in at $14 an hour. Current workers are paid an average of $20 an hour.

Similar cutbacks were made for salaried workers.

Retirees relieved

Carl Ramich, the president of the Dana retiree group in Reading, Pa., said he and other retirees were relieved that union negotiators were able to save retiree benefits.

Jim Robinson, district 7 director for the United Steel Workers in Indiana and Illinois, said, It s important to remember that we didn t cut people s pay, we preserved health care, and we preserved pensions.

Besides having a new chairman, Dana will have a new board of directors, some of them appointees of the larger creditor groups. The board met for the first time Thursday and will meet again next week, Mr. Devine said.

Dana s exit financing was coordinated by Citigroup Global Markets Inc., Lehman Brothers Inc., and Barclays Capital. The auto supplier has said its reorganized business is worth $4 billion.

Contact Larry P. Vellequette at: lvellequette@theblade.com or 419-724-6091.