City expects Snell to trump pounds 4bn Lucas bid
Saturday 30 January 1999
Industry analysts believe that Mr Snell, famed for his audacious and highly leveraged bids, will increase Federal-Mogul's tentative pounds 3.6bn offer for the car parts and aerospace group up to pounds 4.2bn, triggering a bitter bid war for Lucas.
Speculation of a clash between the two US engineering giants came as Lucas announced the closure of two plants in Swansea and Cincinnati with the loss of over 1,000 jobs.
In another blow to Lucas, the company's chief executive, Victor Rice, came under fire from a union leader who warned that his plans for an American deal could put the company's pounds 4bn pension fund at risk.
However, financial experts were focused on Mr Snell's next move. They predicted that the Federal-Mogul boss, who has promised to achieve his trumpeted "Big Hairy Audacious Goal (BHAG)" of $10bn (pounds 6bn) in sales by 2002, would raise its failed 280p cash-and-share bid to 310p per share.
The move would force Joe Gorman, the chairman of TRW - one of the biggest car parts manufacturers in the US - to raise its 288p cash offer. "Dick Snell is serious about Lucas. I think he'll come back with a 300p to 310p offer," said Mark Little, engineering analyst at BT Alex.Brown.
Mr Little added that Mr Snell would probably increase the cash element of the offer in a bid to appease Lucas's UK shareholders, who do not want to hold US shares.
Other analysts noted that a bold bid would be in line with Mr Snell's past strategy. Since joining from rival engineer Tenneco in 1996, the 57-year-old has spent over $5bn on takeovers, growing Federal-Mogul from a medium-sized player into an industry giant with expected 1998 sales of $7bn and 56,000 employees worldwide.
Two years ago Mr Snell stunned the UK engineering sector when he bought the brake-pads manufacturer T&N for pounds 1.5bn, when Federal-Mogul was valued at just $1bn. Since then he has bought the car parts unit of the US engineer, Cooper Industries, for pounds 1.9bn, and Fel-Pro - a gasket maker - for $720m.
Almost all the purchases included Federal-Mogul's highly rated paper and a high element of debt, provided by Mr Snell's many backers on Wall Street. The purchase of Lucas, which has a pounds 4bn turnover, would enable Mr Snell to achieve his "BHAG" well before time.
However, some analysts warned that Mr Snell risked overstretching Federal- Mogul's weak balance sheet. "After his acquisition spree, Dick Snell has $3.5bn of debt and gearing of 110 per cent," said one observer.
LucasVarity yesterday repeated that the TRW merger offered greater synergies than a deal with Federal-Mogul. Lucas has maintained that a tie-up of its brake business with TRW's steering wheel and airbag operations would enable the group to offer a complete package to the world's leading car manufacturers.
The company denied that the closure of its car wiring plant in Ystradgynlais, near Swansea - where more than 700 people would lose their jobs - and of a brake factory in Cincinnati were linked to the TRW takeover. A spokesman said the decision had been taken because of difficult conditions in the two markets.
The spokesman dismissed allegations by Roger Lyons, the general secretary of the white-collar MSF union, that the company's pension fund could be destroyed if Lucas were broken up by a US buyer.
Mr Lyons said he would urge Mr Rice to reassure Lucas's 40,000 pensioners that their fund would not be "raided" by a US buyer. "The fund is not the property of a predator coming in for the company, it is the property of the employees."
The Lucas spokesman said the MSF's fears were "unfounded" and added that the company would comply with UK pensions regulations.
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