just-auto.com

EXCLUSIVE: Federal-Mogul eyes further acquisitions

By Dave Leggett | 2 December 2009

US-based Tier 1 supplier Federal-Mogul's President and CEO has told just-auto that he sees acquisition opportunities ahead for his company in the next twelve months amid further supplier sector restructuring.

Jose Maria Alapont maintains that while Federal-Mogul is well placed for the future after extensive restructuring in recent years, some suppliers are vulnerable following an unprecedented drop-off to volumes this year – especially in North America - that is now easing.

“We won't relax at Federal-Mogul,” he says. “The people that have done the right restructuring and have the strength to keep driving, simultaneously, restructuring and cost reduction, while still having new technology and innovation – they will be successful.

“Some others will find that the restructuring they have done is not good enough,” Alapont says, adding that restructuring has to be 'in-depth' if suppliers are to remain competitive and profitable in continuing tough times.

“To have a second successive year of lack of performance after 2009 is just not going to be possible. There will be more consolidation because not everyone will make it.”

Alapont is, however, upbeat about the financial position of Federal-Mogul, which is controlled by billionaire investor Carl Icahn (he owns 75% of the company's common stock and chairs the Federal-Mogul board) .

The company's ambitions became apparent earlier this year when Federal-Mogul tried unsuccessfully to buy then-bankrupt Delphi's assets. Delphi eventually emerged from Chapter 11 bankruptcy in a deal with its major creditors, which included GM.

Federal-Mogul's bid for Delphi got as far as due diligence, but Alapont is philosophical. “We wanted it to happen, but if it doesn't, it doesn't. Every company should do what they consider is best for their future. We fully understand and respect the decision that they [at Delphi] took.” 

Federal-Mogul returned to profitability in the second quarter of this year and also posted a Q3 profit. Alapont maintains that Federal-Mogul was relatively early to cost restructuring in 2008 and has moved some capacity from high-cost places to low-cost, such as China – where Federal-Mogul now has a technical centre in Shanghai.

Global scale and operations, along with diversification which means many products and many customers are picked out by Alapont as key attributes for Federal-Mogul. He notes that the company supplies to over 250 vehicle platforms and over 700 powertrains worldwide. Risk is well and truly spread. There's also a huge aftermarket business which has helped maintain stability when OE volumes have been volatile.

“Our proven business model - we are very global and very diversified -  gives us a lot of strength, along with our financial strength and healthy liquidity,” Alapont says.

He believes Federal-Mogul is in a very good position for further acquisitions as part of the process of further supplier sector consolidation.

“In the next twelve months we will be looking very seriously at potential acquisitions all around the world.”

Is there a pot of cash to draw from? It would seem so. Federal-Mogul has been generating cash this year and appears to have plenty of credit to access if it needs to.

“Right now our liquidity is US$1.3bn - which is available for potential acquisitions. Also, and this is important, we have a credit line of US$3bn plus a revolving facility of US$500m – US$3.5bn in total. We secured that finance till 2014 and we have it at very low interest rates because we got it in 2007 under optimum market conditions – very fortunate, I know.

“So we have good liquidity, very solid credit lines and we generate cash, we don't consume it. It's a very strong financial position.”

Dave Leggett