Private Equity Firms Stalk Top French Suppliers

PARIS – Two major French automotive suppliers currently are in play on the French stock market as speculators gamble on a private equity takeover of independent Valeo SA and a spin-off of Faurecia SA, the parts-making subsidiary of PSA Peugeot Citroen.

“There is a lot of appetite among private equity for automotive suppliers,” says Gaetan Toulemonde, an automotive analyst for Deutsche Bank in Paris. “They see a chance to profit” by buying assets at a low price.

Valeo reportedly saw shares this week rise 1.6% to €42.40 ($57.90) after jumping 32% so far this year, but that is still well below the €100 ($137) price of five years ago.

With sales of €10.1 billion ($12.7 billion) in 2006, the supplier is being pursued by several investment groups. One of them, Pardus Capital Management, already controls 11% of Valeo’s stock, which recently asked the supplier for eight board seats.

Valeo CEO Thierry Morin says in a media report that although the request is “excessive,” the issue is open for discussion.

Other contenders for Valeo, French economic newspapers say, are PAI Partners, a French investment fund, and U.S. equity firms Cerberus Capital Management and Apollo Management, which started the activity.

Among the ideas proposed by these suitors is a sale of as much as 30% of current business activities.

At a recent board meeting, Valeo directors said only that all options are being considered.

“After the information that was published on the Apollo project, it is logical that others put their foot in the water,” says a Valeo source quoted by the financial paper Les Echos.

“Considering the new proposals that have been received, we need a little time now to examine everything that is already on the table.”

Valeo’s annual stockholder’s meeting will be held May 21.

Faurecia, which is on PSA’s books at €90 ($123) per share, has been selling for less than €60 ($82). However, share value, along with that of PSA, has been rising following speculation the supplier will be spun off.

A spokesman for PSA denies rumors of a spin-off and says the auto making group has not changed its strategy and wants to retain control of Faurecia.

PSA currently holds 71% of Faurecia shares, after raising its investment in 2001 to permit Faurecia to take over supplier Sommer Allibert Group.

When PSA financial expert Yann Delabriere was named CEO of Faurecia in February, he said his goal was to follow a strategy of becoming a strategic partner of leading auto makers, while achieving “operational excellence (that) will permit us to redress the profitability of Faurecia and to continually accompany our clients in all their projects anywhere in the world.”

Nonetheless, there is room in the official statements of PSA executives to support an eventual spin-off.

“Faurecia is a fine enterprise that has been able to enlarge its customer base and has become more and more international,” CEO Christian Streiff said in March.

“However, its capital value doesn’t reflect the work that has been done. We have to finish our work before asking ourselves questions about the future of Faurecia.”

Faurecia sales rose 6.1% in 2006, to €11.6 billion ($14.6 billion), although operating profits fell 0.6%. The increase in sales came mostly from emerging markets, where investments remain high.