Delphi Weighs ‘Bolt-On’ Acquisitions Against Dividends
Delphi has accomplished three of its four priorities for deploying cash: share buybacks, achieving investment-grade credit metrics and “opportunistic” acquisitions, Chief Executive Officer Rodney O’Neal said yesterday. Delphi had $1.63 billion in unrestricted cash and near-cash as of Sept. 30.
“We’ve done three of the four,” O’Neal said in an interview at Bloomberg News’ headquarters in New York. “We have not done the dividend, and it’s one that many investors have encouraged us to look at. It makes sense.”
Delphi, based in Troy, Michigan, rose 78 percent last year after returning to the public markets in November 2011 following a 2009 exit from bankruptcy. O’Neal, 59, has cut expenses and reduced the company’s product lines to 33 from 131. The CEO also has focused on emerging markets and emphasized products such as fuel-injection and active safety systems sought by consumers and mandated by governments.
Delphi acquired the electrical connectors unit of FCI Group from Bain Capital for 765 million euros ($990 million) on Oct. 26 when Delphi reported the deal’s completion. O’Neal said he would consider more such acquisitions this year.
“I’m not looking for anything transformational for Delphi,” he said yesterday. “I’m already transformed. I’m looking to do a bolt-on where I bolt it on in the morning and I get the synergies out by nightfall and I’ve moved on.”
‘We’re a Duck’
The auto-parts maker is returning cash to shareholders through a $750 million share-repurchase program, announced in September.
O’Neal is trying to balance Delphi’s use of cash with its goal of achieving investment-grade ratings. Kevin Clark, Delphi’s chief financial officer, said last year he expected Delphi to earn that rating by the end of April 2013.
Standard & Poor’s Ratings Services on March 16 raised its corporate credit rating on Delphi to BB+, the highest non- investment grade. Moody’s Investors Service has a corporate family rating of Ba1, also the highest non-investment grade. Fitch Ratings last year assigned Delphi a rating of BBB-, the lowest investment-grade rating.
“We’re walking like a duck, talking like a duck and quacking like a duck,” O’Neal said. “We’re a duck. I don’t know what else we need to do. But at the end of the day, I can’t call myself that. I need them to do that.”
Potentially complicating how Delphi uses its cash is the company’s investor base, 47 percent of which are hedge funds, according to data compiled by Bloomberg. That may pressure the board to focus more on buybacks than dividends, said Matthew Stover, an auto analyst with Guggenheim Securities in Boston.
“Two of their big shareholders don’t care as much about income as they do capital appreciation,” Stover said in an interview this week. “Using the balance sheet to buy back stock is more important for them. With that shareholder structure, does Delphi think about dividends and buybacks differently? That’s a big issue the market is going to wrestle with with this one.”
The company, registered in Gillingham, U.K., rose 0.6 percent to $38.87 at the close in New York. The shares have gained 1.6 percent this year.
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