Marcato Capital believes that a separation could increase Lear Corporations current stock value by 45%
Marcato Capital Management, the activist hedge fund headed by Mick McGuire is pushing Lear Corporation to split its businesses into two publicly traded companies to unlock substantial value.
In a letter sent to Lear Corporation CEO Matt Simoncini, Marcato Capital said the management of the company should consider separating its primary business units—the electrical and seating divisions.
The shares of Lear Corporation rose nearly 5% to $107.79 per share on Tuesday.
Marcato Capital believes separation could substantially increase Lear’s value
“We believe a separation could result in a combined value of $145 per share, approximately 45% above the company’s recent share price,” said McGuire.
He emphasized that it is the responsibility of the management of Lear Corporation to explore the opportunity given the substantial value that would be created from the separation of the business units.
McGuire said the current stock price of the company is “clearly well below what is readily achievable.”
Marcato Capital invested in Lear Corporation in February 2013. At the time, the activist hedge fund acquired 5.9% in the company, and disclosed that it was engaged in discussions with the management to gain board seats. Marcato Capital currently owns 4.6% stake in the company.
Lear’s response to Marcato Capital
In a statement, the board and management of Lear Corporation said they are committed to delivering superior value to shareholders. The company also pointed out that it has a proven record of delivering significant value to investors.
According to the company, it has returned more than $2.1 billion to shareholders through stock buybacks and dividends since 2011.
Lear Corporation also emphasized that it was able to deliver a 203% total shareholder return since 2010, two times the returns of the S&P 500 over the same period.
The company added that its 2014 total shareholder return of 22% outperformed the S&P 500 return of 14%.
Furthermore, Lear Corporation said its main priority is to create substantial shareholder value, and its “strategy is delivering consistently improving financial results and driving superior returns for shareholders.”
The company said its leadership is open to the views of its shareholders and it will review the recommendations of Marcato Capital.
