By Scott Anderson
TORONTO, Jan 23 (Reuters) - Magna International Inc. , one of the world's biggest auto-parts makers, plans to spin off two units later this year, but industry analysts said on Thursday it might find the companies a hard sell.
Frank Stronach, Magna's flamboyant chairman and founder, said earlier this week that his Aurora, Ontario-based company is ready to launch its Magna Styr vehicle assembly division in some kind of spinoff "in a few months" and its recently acquired Donnelly mirrors group within a year.
Last year Magna had floated a plan to merge Austria-based Steyr with its Tesma International Inc. unit, which makes engines and transmissions, but later abandoned it.
"If (the spinoff) comes soon, it's going to be launched when the auto industry doesn't have the best prospects," said Felix Pilorusso, an independent automotive industry analyst in Toronto.
"I'm not going to say it's going to be a tough sell, but the prospects for the auto industry are not going to help the case."
The North American auto industry is expected to face flat to lower production this year as sales slow after several good years spurred by consumer incentives.
Analysts have forecast North American production will decline to about 16.2 million vehicles in 2003 from about 16.6 million last year.
Earlier this month, Magna based its 2003 financial projections on North American production of 16 million units.
Also, another tough year is expected on stock markets in 2003, likely making investors less receptive if the spinoff takes the form of an initial public offering.
"It's a bit surprising to see that they are doing it now given the state of the markets, but they have been very consistent in saying that they would do Steyr," said an analyst who didn't want to be named.
Last year saw the number of true initial public offerings shrink dramatically as stock markets sagged under the weight of depressing economic news and dismal corporate results.
Analysts said the Magna spinoffs could take a number of forms, including the simple IPO using Magna shares, an IPO involving a combination of shares and cash, or offering the company out as a dividend.
"If it is an IPO, obviously the markets are uncertain right now. They have been gyrating around quite a bit and the valuations on the auto stocks are relatively low, so the timing is interesting," the analyst said.
Steyr does have a number of projects due to start up later this year including an assembly job for a new Saab convertible and a BMW sports utility vehicle, which may make its prospects attractive down the road.
In the first nine months of 2002 Steyr had operating margins of just 0.7 percent.
Magna's stock, which has slipped 13.4 percent in the past year, was at C$87.29 on the Toronto Stock Exchange on Thursday afternoon.
The expected spinoff is consistent with Magna's strategy of building solid, private companies before offering them up publicly, analysts said.
Past spinoffs include Intier Automotive Inc. its seat and interior division, Tesma, and Magna Entertainment Corp. , a gambling and racetrack company.
($1=$1.52 Canadian)