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The Activist Spotlight - Lear Corp. (ticker: LEA)

By Kenneth Squire - Barron's - February 18, 2013

Lear Corp. (ticker: LEA)
Business: Automotive supplier.
Investor's Average Cost: $40.91 per share
Stock-Market Value: $5.3 billion ($54.46 per share)

What’s Happening: Marcato Capital Management plans to nominate board candidates with an aim of improving Lear's capital-allocation practices, which Marcato wants to include a $2 billion stock repurchase.

Key Numbers:
$938 million: the company's annual Ebitda.
$1.4 billion: its cash.
$626 million: its debt.

Behind the Scenes: Marcato, founded by former Pershing Square partner Mick McGuire, selectively engages with management of portfolio companies to create shareholder value. In this situation, they teamed with Oskie Capital Management, a hedge fund formed by three former members of the Treasury's auto team. They are making this investment during a good point in the auto cycle, where Lear is trading at its lowest multiple ever despite actually doing very well. Marcato thinks that's mainly because the company is stockpiling cash. While Lear recently said it was accelerating its share repurchases and increasing its dividend, even if it executes on this plan, it's left with a significant net cash position. A shareholder representative on the board can be very helpful with respect to decisions regarding capital structure, capital allocation, acquisitions and divestitures, and capital spending. This shouldn't be a contentious situation. Marcato isn't trying to oust management or change operational strategies; they just want to help formulate the best plan to use cash to maximize shareholder value. — KENNETH SQUIRE


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