BorgWarner May Make Acquisitions, Resume Dividends

BorgWarner Inc., the maker of automatic-transmission parts, would consider acquisitions in Asia and may resume dividend payments in November.

An acquisition, which could cost as much as $600 million, isn’t likely to happen this year and has a less than 50 percent chance of occurring in 2011, Chief Executive Officer Tim Manganello said in an interview yesterday at the company’s headquarters in Auburn Hills, Michigan. Such spending would be weighed against dividend payouts and share repurchases, he said.

“I’d like to go a little bit deeper into Asia,” Manganello said. “If an acquisition can help that in the powertrain area, we’d probably look at that.”

BorgWarner, which has projected as much as $5.35 billion in sales this year with 25 percent coming from Asia, is benefiting from higher vehicle production by its customers and fewer employees. Demand for the company’s turbochargers, which automakers are using to improve the power and efficiency of smaller engines, is rising as vehicle-makers try to meet U.S. mileage standards.

BorgWarner last month raised its annual profit forecast for the second time this year, to as much as $2.80 a share from as much as $2.50, after reporting a 55 percent jump in second-quarter sales. Sixteen analysts in a Bloomberg survey estimate profit of $2.74 on average.

Acquisition negotiations can take years, Manganello said. BorgWarner’s April purchase of Dytech Ensa SL, the Vigo, Spain- based maker of products that circulate an engine’s exhaust gas to reduce nitrogen-oxide emissions, was four years in the making, Manganello said. BorgWarner said in a regulatory filing that it paid $147.7 million for Ensa. The company had $180 million in sales last year.

‘Mating Dance’

“It’s a mating dance,” he said. “You have to wait for the right things to happen before we’re willing to pay their price or we’re willing to sell or their price or expectations become reasonable.”

Acquisitions are BorgWarner’s first priority for its cash, followed by share repurchases and dividends, which are both secondary, Manganello said.

BorgWarner bought back 4.1 million shares of its common stock in the three months ended June 30 and said July 30 that its board authorized repurchasing 5 million more shares.

The company discontinued its dividend in 2009 during the recession. Manganello, who is also chairman, said yesterday the board will review the payment at its November meeting, as it does every year.

Dividend Payments

BorgWarner may restart its dividend that month at 4 cents a quarter, data analyzed by Bloomberg indicates.

Brett Hoselton, an analyst with KeyBanc Capital Markets Inc. in Cleveland, said BorgWarner’s profit levels, free cash flow and stronger balance sheet make resuming the dividend payouts likely.

“It’s a combination of all the external factors plus the commentary and body language you get from the management team,” Hoselton said in an interview. He has a “hold” rating on the shares.

BorgWarner rose 25 cents to $45.51 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have gained 37 percent this year.

Download: Manganello Interview on BorgWarner

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