Word around Wall St. is that Canadian car parts company Magna International (MGA) is the leader among companies that want to buy Chrysler from DaimlerChrysler (DCX). Magna already does parts and assembly work for Daimler, and also has large relationships with other manufacturers like BWM.
Magna shareholders should encourage management to stay away from the aquisition. The company’s own financials are a good indication that buying further into the North American market is a poor idea. Magna’s revenue last year was $24.2 billion. North American grew the most slowly of its geographic units, up only 2% in revenue over the year before. Magna’s earnings before taxes for 2006 were down 19% to $778. North America was the drag that hurt profits.
At $80, Magna trades near a 52-week high. If its buys a money losing operation like Chrysler, it will have to manage a company with more revenue that it has. It is hard to imagine that this will not compromise the ability for the executive team to focus on its own core busines.
It is difficult to see what Magna brings to the situation. Daimler certainly knows as much as Magna about running a car company. The unions are not likely to give Magna any concession beyond what they would give Daimler.
In a Chrysler deal, the Magna shareholders risk the company’s stock price recovery to take on a troubled car company that operates primarily in a troubled market.
Douglas A. McIntyre
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