(Combines bond story with details from news conference)
By Rebecca Harrison
PARIS, July 25 (Reuters) - French car parts maker Valeo said on Friday it was launching a 350 million euro ($402.6 million) convertible bond that could help it fund acquisitions to boost its presence in the electronics industry.
Chairman Thierry Morin also confirmed at a news conference that the firm -- which on Thursday posted rising first-half profit -- expected to boost its operating margin for the year from last year's five percent. He also said it would post full-year sales in line with a sliding market.
Morin said Europe's largest listed car part maker needed to form partnerships with other firms to fill in skills it lacked in the electronics industry -- a growth area for the company -- and said the bond could help it pursue such deals.
"Some of the areas in which Valeo has expanded, like in electronics, necessitate tie-ups and types of skills that Valeo doesn't have," Chairman Thierry Morin told a news conference.
He declined to comment on whether the firm was in any talks, but said there were too many small players in the supplier industry and it needed to consolidate.
Morin's comments come after U.S. peer Dana Corp on Tuesday rejected a $2.2 billion hostile bid from its smaller rival ArvinMeritor . Shares in Valeo, which rose before the bond was announced due to its forecast-beating first half, were down 0.95 percent at 32.29 euros by 1145 GMT, lagging European peers.
TARGETS CONFIRMED
Morin, who over the past two years has cut costs and hauled the firm back to profit, said he expected car production in Europe to fall five percent this year and between five and 10 percent in the U.S.
"Our sales will be in line with the market," he told a news conference, adding Valeo would likely return to strong sales growth in mid 2004, when he expects to see the market recover.
French carmakers Renault and PSA Peugeot Citroen -- both major Valeo clients, on Thursday posted a slide in core earnings and lower full-year targets due to slack demand and a strong euro.
Valeo on Thursday posted a 50 percent rise in net profit thanks to lower debt-servicing costs and a significant tax reimbursement, and said although operating profit was virtually flat its margin improved to five percent from 4.6 percent.
"These results show Valeo knows how to progress even in adverse conditions," Morin said, adding the firm had been hit by the impact of a strong euro versus the U.S. dollar.
Valeo outperformed the market in all regions in the first-half, except the U.S., where it has been hit by a loss-making windscreen wiper unit.
The Paris-based firm said in a statement the convertible bond, which could be raised to 463 million euros if its over-allocation option is fully exercised, would mature on January 11, 2011.
The company said the coupon would be between 2.375 percent and 2.875 percent and would be priced at a premium of between 40 percent and 45 percent of the reference share price.
It said it was issuing the bond to extend the maturity of its debt and diversify Valeo's sources of financing, although Morin said this could also pave the way for acquisitions.