The move shows just how far Visteon, itself a spinoff from Ford Motor (F) back in 2000, has come since seeking bankruptcy protection just five years ago. As part of its post-bankruptcy transformation (especially under the tenure of current CEO Tim Leuliette), the company has focused on those two fast growing business units which now generate nearly all of its revenues. For some context, in 2013, the climate business generated ~$4.9b of sales and electronics did ~$1.5b. Those numbers should be even higher this year as the company spent over $200m acquiring Johnson Controls’ (JCI) electronics business. That move should add some heft to the business and remove a competitor from the space. In contrast to those two growing areas, the company has been actively divesting itself of its other slower growing or underperforming businesses, including dumping the majority of its auto interior business to an affiliate of Cerberus earlier this year. Another focus of the company over the past few years has been geographic diversification and it now generates a sizable percentage of its revenues from the emerging markets.
According to the ‘people in the know’ cited in the Bloomberg piece, the company’s board ‘concluded that the two divisions, which have little overlap in their operations, add little value operating under the same corporate umbrella.’ Although it’s becoming more popular these days, that logic represents quite a radical shift in thinking for the auto supplier industry from years back when companies tried to be full service shops. I wouldn’t be surprised to hear about some ‘outside influence’ pushing this idea. Regardless, the move won’t be completed this year and likely won’t be formally announced until after the company has finished integrating Johnson Controls’ electronics unit. A sale is still an option for the company, but it might be difficult as the climate unit is part of a 70/30 JV with South Korea’s Halle Climate. Visteon would need Halle’s approval to sell its stake and it was rebuffed by the South Korean government when it tried to acquire the other 30% by acquiring Halle.
The stock has been on a tear this past year and this very bullish Barron’s piece from March seems to have underestimated the company’s upside potential. The stock popped on the Bloomberg report, but analysts from Gabelli & Co think a breakup could deliver even further upside of 25% on a sum of the parts basis. We shall see…
Disclosure: Author holds no position in any stock mentioned.