Dana Resists

It was a well-kept secret, but for more than a month one of North America's top suppliers courted an even larger competitor in a merger that few observers could have predicted.

ArvinMeritor Inc. of Troy, MI, is offering $15 per share — or about $2.2 billion — to acquire Dana Corp., of Toledo, OH. ArvinMeritor Chairman and CEO Larry Yost says he was in discussion with Dana management about combining the two companies since June 4, but Dana Chairman, President and CEO Joe Magliochetti has resisted all overtures.

The hostile bid comes after ArvinMeritor files a lawsuit in Buena Vista, VA, accusing Dana's board of shirking its fiduciary duties to Dana shareholders when it rejected ArvinMeritor's proposal. ArvinMeritor owns more than 1 million shares of Dana. There are 148 million shares of Dana outstanding.

Combining the two suppliers is a bold move. Both are entrenched in the light-vehicle, heavy-truck and aftermarket segments. Yost says he is confident the deal would clear regulatory hurdles.

ArvinMeritor and Dana together could resurrect a concept that Dana pioneered in 1998: the rolling chassis.

Dana's frame and axle expertise allowed it to control assembly of the rolling undercarriage, integrating parts from nearby suppliers, for Dodge Dakota pickups in Brazil.

The DaimlerChrysler AG plant since has closed due to sluggish sales of the vehicle, but the industry consensus is the rolling chassis concept is sound.

DaimlerChrysler, for instance, considered using the rolling chassis in assembling the Dodge M80 compact pickup at a new plant in Windsor, Ont., Canada — with suppliers overseeing much of the assembly by contributing large modules. But that program fizzled recently when DC couldn't make a sound business case.

Dana and ArvinMeritor alone could handle the lion's share of componentry for a rolling chassis, given ArvinMeritor's expertise in exhaust systems, suspension, corner modules, wheels, floor pans and closures.

Since the merger in July 2000 of Arvin Industries Inc. and Meritor Automotive Inc., the new company has identified undercarriage expertise as a strategic target. Plugging Dana into that tactic, Yost argues, is a slam dunk.

At presstime, Dana had not yet advised its shareholders of its position regarding the tender offer. If the deal should come to pass, the combined Dana and ArvinMeritor would have annual sales of about $17 billion.