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By Susan Kelly
CHICAGO, Nov 17 (Reuters) - Auto parts maker ArvinMeritor Inc. on Monday raised its all-cash offer for rival Dana Corp. by 20 percent, but Dana's stock sank amid speculation the hostile bid could be unraveling.
ArvinMeritor said the new $18-a-share offer was final. The revised offer values Dana at $2.53 billion and is up from the previous offer of $15 a share.
Shares of Dana fell 8.5 percent in heavy trading Monday.
"We think the raised ArvinMeritor bid may be a precursor to (the company) walking away from the deal," J.P. Morgan auto analyst David Bradley said in a research report.
Dana's stock has traded above $15 since ArvinMeritor launched the hostile bid in July. But the $15 offer attracted scant interest from Dana shareholders, who tendered just 1.5 percent of the shares outstanding even as ArvinMeritor extended the deadline for the offer three times.
Troy, Michigan-based ArvinMeritor, which makes axles, brakes, and exhaust and suspension systems, said it will end its latest offer at the close of trading on Dec. 2.
Some analysts said the deadline appeared to signal an about-face for ArvinMeritor, which repeated as recently as last week that it remained committed to getting the deal done.
They said the two-week time frame given for Dana to respond was an unusually short window, and it was the first time ArvinMeritor had referred to an offer as "final."
"We believe this signals that (ArvinMeritor) is bringing the process to a close unless they can get Dana management on board now," said Richard Hilgert, automotive analyst for Oppenheimer & Co., in a research report.
HURDLES REMAIN
Major hurdles to the deal remain, including ArvinMeritor's lack of financing commitments and antitrust issues related to the two companies' dominance in truck parts. Analysts also pointed to the shear lack of enthusiasm among Dana investors.
"The presumption is ... that a majority of shareholders will not tender their shares at $18 a share," said Peter Ziv, president of Ziv Investment Co. in Chicago.
Dana on Monday said its directors would evaluate the revised offer and urged shareholders to wait for the board's position before deciding whether to tender their shares. Dana has steadfastly refused to negotiate with ArvinMeritor.
"We think that Dana management will maintain its position that the offer is inadequate, there is no logic to the combination, and there are significant financing and antitrust risks," Prudential Equity Group analyst Michael Bruynesteyn wrote in a research note.
If ArvinMeritor could pull off the deal, it would help to broaden its portfolio of products as well as lower the overhead costs of a combined entity. And it would help satisfy U.S. auto makers who want to source their parts from fewer suppliers.
The increased offer marks the latest phase in a takeover saga that has been punctuated by court fights, the death of Dana's chief executive, and the below-par financial performance announced by ArvinMeritor last week.
Dana, based in Toledo, Ohio, has recently performed better than ArvinMeritor and has been restructuring itself, prompting analysts to doubt whether Dana would be keen on a deal at all.
Dana shares closed down $1.41 at $15.24, and ArvinMeritor shares ended 12 cents lower at $17.94, both on the New York Stock Exchange. (Additional reporting by Arindam Nag in New York and Doris Frankel in Chicago)