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Remy buyer played hardball leading up to $950M deal

August 29, 2015

Greg AndrewsThe sale of any public company is replete with drama, as the suitor turns on the salesmanship and the company in its sights plays hard to get. Any company whose board accepted the opening offer from a pursuer would look almost as gullible as a car buyer who walked into a dealership and paid sticker price.

A new regulatory filing shows that Pendleton-based auto-parts maker Remy International Inc. did squeeze some extra cash out of its acquirer, Auburn Hills, Michigan-based BorgWarner Inc.—but not a lot.

BorgWarner announced the $950 million cash buyout July 13, capping what the filing shows was a three-month courtship. The company agreed to pay $29.50 a share, just 50 cents per share more than the company’s initial overture of $29 a share. The extra four bits added just $16 million to the deal price.

The filing, which describes the background leading up to the merger, says the Remy board went along after concluding “there were few, if any, potentially interested and capable alternative counterparties … that would likely be able to compete with the financial terms proposed by” BorgWarner.

After extensive negotiations with BorgWarner, Remy’s board concluded $29.50 “was the highest per-share consideration reasonably attainable,” the filing said.

BorgWarner CEO James Verrier withstood several rounds of requests for a richer deal, telling Remy Chairman John Weber on June 23 that, based on his company’s due diligence of Remy up to that point, it “did not have much room” to go higher than $29.

Verrier began the courtship April 6, asking Remy CEO Jay Pittas over dinner in Detroit whether Remy would be interested in a “‘strategic partnership’ of some kind” to further exploit new technologies they were jointly developing. Pittas responded that Remy was “generally open to discussing new business opportunities.”

Sixteen days later, Verrier called Pittas and said BorgWarner might be interested in making an offer to acquire Remy. But he said BorgWarner was interested only in “exploring such a proposal on an exclusive basis and was not interested in participating in an auction.”

Verrier held firm to those conditions, and he and his board repeatedly rejected efforts by Remy to insert a “go-shop provision” into the merger agreement that would allow it to seek out other offers to ensure it was getting the best deal possible.

While Remy experienced setbacks at the negotiating table, shareholders still ended up with a hefty premium to where the stock had been trading. The $29.50 final price represented a 44-percent premium to where the stock closed the day before the deal was announced.

But not surprisingly, securities lawyers, who routinely scrutinize the fine print of merger agreements in search of lawsuit fodder, smell an opportunity. At least nine law firms have issued press releases saying they are analyzing the deal and are interested in rounding up shareholders for possible lawsuits.

“The investigation concerns whether the Board of Remy International breached their fiduciary duties to stockholders by failing to adequately shop the Company before agreeing to enter into this transaction, and whether BorgWarner is underpaying for Remy International shares,” the New York-based Law Offices of Vincent Wong said in an Aug. 10 press release.

One reason the two companies believe the deal makes sense is that Remy and BorgWarner boast complementary product lines.

Remy, a former General Motors subsidiary with $1.2 billion in sales and 6,600 employees, is a leader in electrical systems, including starters and alternators. On the other hand, BorgWarner, which has 22,000 employees and $8.3 billion in sales, focuses on powertrain technologies.

The merged company can combine technologies to improve fuel economy, reduce emissions and capitalize on the increasing popularity of electric and hybrid vehicles, BorgWarner and Remy officials said on a July 13 conference call with investors.

“We’ve said it before—electrification is a friend of BorgWarner,” Verrier said on the call. “I strongly believe that this acquisition will be another step in executing our plan to grow to $15 billion in revenue by 2020.”

The deal, subject to approval by Remy shareholders, is expected to close in the fourth quarter.

BorgWarner and Remy have not said how the merger will affect Madison County, where Remy employs 450. However, the companies have said they expect to eliminate $15 million in expenses through “synergies,” including the elimination of duplicative public company functions.•

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