Terry O'Rourke's surprise departure last week as president and COO of ArvinMeritor caused investors to turn sour on the US supplier.
ArvinMeritor's shares dropped by more than 10% after it simultaneously announced on January 28 poor first quarter earnings and O'Rourke's resignation.
Top line performance at the maker of axles, brakes, exhaust and suspension systems was strong. Sales increased 28% by $471 million in the first quarter of the financial year that ends Sept. 30, to just under $2.2 billion.
Foreign currency translation, driven primarily by the stronger euro, lifted sales by $135 million. The acquisition of Zeuna Stärker added $203 million in revenue.
Organic growth has been healthy, too. Even without the currency boost and acquisition, sales would have been up by about 8%. That is mostly due to strong North American Class 8 truck volumes.
Earnings did fall 41% compared with year-ago, though mostly because of the company's failed bid for Dana Corp.
Troy, Michigan-based ArvinMeritor abandoned its takeover effort in November after Dana's board rejected an $18-a-share tender.
The numbers look bad - but $16 million in banking and legal costs associated with the bid for Dana are unlikely to have weighed much on the share price. They can easily be seen as one-offs - and in any case were offset by a $7 million pre-tax gain from the disposal of Dana shares.
Gross margins rose by 5% - more slowly than sales but not too bad in a tough quarter.
Fear of another bid
But investors appear nervous that the Dana bid might not be a one-off.
Many observers had expected a departure from ArvinMeritor's senior management after the failed bid. But most thought it would be chairman and chief executive officer Larry Yost who left, not the 55-year-old O'Rourke.
After the failed bid for Dana it was widely assumed that Yost had lost his chance to expand ArvinMeritor with another big acquisition.
Yost turns 66 in February, but the executive delayed his retirement plans last July to go after Dana. Since the bid collapsed he has shown no signs of retiring anytime soon and he remains an outspoken believer in industry consolidation.
That philosophy is thought to be at odds with O'Rourke, whose COO position has been eliminated.
O'Rourke had been Yost's heir apparent. Speculation is that he became discouraged by Yost's unwillingness to step aside.
O'Rourke joined from Lear, which pioneered the concept of complete interiors to the industry. He led Lear's Ford Division.
At ArvinMeritor, O'Rourke focused on the growth opportunities of modules, initially as head of the Light Vehicle Systems (LVS) business between March 1999 and May 2002.
O'Rourke had a clear operational vision and worked hard on getting close to customers, not least in Europe.
His description of ArvinMeritor's strategy was less peppered with management jargon than the talk of most senior executives.
And it appeared to be working. On booked orders ArvinMeritor is forecasting growth of 5% a year in the Light Vehicle Systems business out to 2006 - against flat industry vehicle volumes in the short run.
While the aftermarket division has had a tough time, LVS is No. 2 in the fast growing global door module market. It has started work on major new contracts, such as doors for the new Golf.
ArvinMeritor has been a pioneer in the roof module market, which after a slow start looks as if it could gather pace in the next few years.
And the exhausts business has been significantly strengthened by the acquisition of Zeuna Stärker. The purchase was led by Craig Stinson - O'Rourke's successor as head of the LVS business - who coincidentally resigned just as ArvinMeritor launched its bid for Dana.
Tighter emission standards for diesels should add to the value potential of this sector over the next few years. On the chassis systems side the group recently announced a new $200 million suspension module contract starting in 2005.
In combination with a recovering heavy truck market the outlook for ArvinMeritor looked fair - with sales set to grow by up to $1 billion this financial year to $9 billion.
But many investors think that ArvinMeritor should continue to focus on improving its balance sheet before looking for more takeover targets.
Instead Yost has strengthened his grip on the group's strategy. The combination of the exit of operationally focused O'Rourke with signs that Yost has not lost his appetite for big acquisitions has spooked some investors.