ArvinMeritor changes course--could sell LVS

ArvinMeritor changes course--could sell LVS

Just six months after it announced it was spinning off its Light Vehicle Systems (LVS) business to shareholders, ArvinMeritor has changed course, announcing it will seek alternative options

Just six months after it announced it was spinning off its Light Vehicle Systems (LVS) business to shareholders, ArvinMeritor has changed course, announcing it will seek alternative options, including a potential sale of the unit, as it seeks to weather a troubling economy.

“We continue to believe that separating our two business groups will unlock significant value for our shareowners and strengthen the competitive position of both businesses, but due to today’s difficult environment we are pursuing additional approaches to achieve a separation,” Chip McClure, chairman, CEO & president, said.

In addition, the company announced it is laying off 1,250 employees, about 7% of its workforce. The cuts will come from 800 hourly and 450 salaried positions.

“We believe the actions we are announcing, as well as the progress we have made over the last several years to improve our cost structure solidly position our company to address the weakness we are seeing in the marketplace,” McClure said. “I am confident that when the global economies and our industry stabilize we will be a stronger, more focused company.”

ArvinMeritor said it will accelerate cost-cutting moves expected to save the company $125 million in 2009. The company will take a $190 million hit on its fiscal fourth-quarter results as a result of “repositioning of cash for maximum flexibility.” ArvinMeritor said it expects free cash flow to be “ahead of guidance” for the year, but the $190 million charge will result in a net loss for the company in fiscal 2008.

“Swift and decisive actions are necessary in response to today’s global economic conditions, which include softness in all markets in which we participate, as well as weaker foreign currencies,” McClure said.

The changes are the latest for the company in the past four years. During that time, ArvinMeritor has closed or consolidated 17 of its North American and European manufacturing facilities, divested itself of non-core businesses and reduced its global workforce by nearly 4,000 employees.

ArvinMeritor said it remains a strong company, with more than $1 billion in global liquidity and $626 million of available funds in its revolving credit facility in addition to $484 million in cash balances. It also announced that there are no current covenant constraints that would prevent it from tapping its revolving credit should it be needed.

The company’s Commercial Vehicle Systems division opened a $30-million gear-cutting facility in Monterrey, Mexico, this summer and at the time, Carsten Reinhardt, the division’s president, said the company had “plans to double that investment in the near future.” It is the first new manufacturing facility the company has opened in 19 years.

In May, ArvinMeritor announced it would spin off the LVS business group to shareholders.

“The plan to separate our two businesses is the result of a comprehensive strategic review to enhance the company’s long-term value for our shareholders,” McClure said at that time. “We are confident that this transaction will not only unlock shareholder value, but will also significantly strengthen the competitive positions of both companies and better align them with their respective customer bases.”

On completion of the spin-off, ArvinMeritor shareholders would own 100% of the common stock of the new firm, to be named Arvin Innovation Inc. Approval of the spin-off by shareholders is not required and the company expected to complete the move within 12 months.

Now, those plans may change. The company said it intends to go forward with the spinoff, but an outright sale is also a possibility.

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