Magna Donnelly Eyes Mirror Dominance

A year ago, Magna International Inc. spun off its interiors business into a separate company known as Intier Automotive. In late June, Magna made another bold move, acquiring one of its loyal suppliers, Donnelly Corp., which sells door handles, windows, mirrors and mirror components to Magna.

Clearly, Canada's No.1 automotive supplier no longer is satisfied to be the No.3 player in interiors, behind both Johnson Controls Inc. and Lear Corp. (Donnelly had a 50/50 joint venture with Lear, Lear-Donnelly Overhead Systems, which was dissolved after Lear acquired UT Automotive in 1999.)

With Donnelly, Magna gets electronics expertise and a company that produces 12 million encapsulated windows and 25 million mirrors annually worldwide.

The new company will be known as Magna Donnelly, and it will be the sixth business unit of Magna International. The unit will retain its headquarters in Holland, MI, and will be led by Dwane Baumgardner, Donnelly's chairman and CEO.

In fiscal 2001, Donnelly reported sales of $850 million. Most of that came from its automotive mirrors business. Worldwide, Donnelly is No.2 in mirrors only to Schefenacker International of Germany.

Magna's mirror operations will be combined with Donnelly's, and Magna says the new company will overtake Schefenacker as the No.1 automotive mirror manufacturer worldwide. Total sales will be about $1.2 billion.

From a strictly regional standpoint, Donnelly's biggest competitor has been Gentex Corp. in nearby Zeeland, MI. It has battered Donnelly in the market for auto-dimming electrochromic mirrors. Gentex has 80% of that market, compared with Donnelly's 16%.

From a financial standpoint, it appears Gentex has won the race, as it has performed well on Wall Street in recent years, bucking the trend for most suppliers.

But Donnelly may have the last laugh; Magna has been a good customer for Gentex's exterior electrochromic mirrors.

So will Gentex retain its mirror business with Magna after Donnelly enters the fold? “To say right now would be speculation. No one knows what Magna will do,” a Gentex spokeswoman says. “In the near term, I don't expect anything to change.”

Frank O'Brien, Donnelly's vice president-corporate development, says Donnelly has been a Magna supplier for 20 years. For Magna, Donnelly has painted exterior mirror components and has supplied mirror glass, door handles and electrochromic cells for auto-dimming mirrors.

The customer base is complementary with respect to exterior mirrors. “We had no business with Chrysler, Mercedes-Benz or Toyota, and that was a big part of Magna's (mirror) business,” O'Brien says.

The deal is valued at $320 million, plus Magna's assumption of $95 million of Donnelly debt. Donnelly shareholders will receive a fraction of a Magna share valued at $28. Magna says it has support for the transaction from 72% of eligible Donnelly shareholders. Closing is expected in late September.

Donnelly has 6,000 employees at plants in 14 countries.