Components of electric vehicle battery trays are welded at Magna’s Heart Lake production facility in Brampton, Ont., on Aug. 3, 2023.Christopher Katsarov/The Globe and Mail
Auto parts maker Magna International Inc. MG-T is expected to slim down by selling divisions in coming months, the same style of corporate finance diet that recently boosted profitability and share prices at retailer Canadian Tire Corp. and gold miner Newmont Corp.
Bankers predict Aurora, Ont.-based Magna will be the next company to embrace what Bay Street calls “carve out” sales by auctioning up to two of its smaller business units: one that manufactures car seats, and a second that makes complete vehicles. The two divisions are expected to sell for a total of about US$1.3-billion, generating cash that Magna can use to scale up its remaining operations, pay down debt and buy back shares.
“We think Magna is more likely to divest businesses it does not consider core to its long-term strategy, which is competing as a market leader,” analyst Tom Narayan at RBC Capital Markets said in a report last week. “We could envision a scenario where Magna sells its seating and/or complete vehicle segments.”
Magna vice-president Tracy Fuerst said the company’s policy is to decline comment on market speculation.
One of the world’s largest auto parts makers, with 340 factories around the world, Magna has sold divisions through carve outs over the past five years. Earlier this month, chief executive officer Swamy Kotagiri said in a conference call that there are “ongoing restructuring actions to right size our business and lower our fixed cost structure.”
He added that, “importantly, divestitures are not off the table. We continue to look at that.”
Carve out sales of a relatively small business within a larger company are one of the few busy sectors in an otherwise relatively quiet mergers and acquisitions market.
U.S. President Donald Trump’s threatened tariffs on imports, and the Canadian government’s plans to respond with reciprocal levies, have created uncertainty in capital markets. Canadian M&A activity is down by 40 per cent through the first seven weeks of 2025 compared with the same period a year ago, according to data provider London Stock Exchange Group plc.
“We have observed a rise in corporate carve-out transactions,” Kevin Myson and Kimberley Grellinger, partners in law firm Bennett Jones LLP, said in a recent report. “The current economic landscape has prompted many corporations to reassess their strategies and non-core assets.”
Magna faces significant challenges if a trade war breaks out, with most of its facilities in Canada, the U.S. and Mexico. Magna and other auto parts makers are also shifting production in anticipation of greater demand for electric vehicles, and need cash to pay for this transition.
When companies do decide to sell divisions, the lawyers said, rival companies and private equity funds frequently end up competing for the business. For buyers, the attraction of a carve out is that the target already has established operations, employees and customers.
Canadian Tire executives announced plans last week to narrow the company’s focus to retailing when they sold sports apparel division Helly Hansen to North Carolina-based clothing company Kontoor Brands Inc. for $1.3-billion. Denver-based Newmont’s CEO, Tom Palmer, said a ”focus on our Tier 1 assets” drove its decision to sell its Porcupine mine near Timmins to Discovery Silver Corp. for $425-million.
Potential buyers of Magna’s seats unit include larger rivals focused on making seats, which could cut cost by combining operations, according to Mr. Narayan. The largest players in the small space are Adient PLC and Lear Corp., both based in the Detroit suburbs. Magna’s seats division could fetch about US$820-million, Mr. Narayan predicted.
Magna’s complete vehicle assembly unit lost a major customer in December when Jaguar Land Rover stopped producing sport utility vehicles at the company’s plant in Austria. Mr. Narayan said the division would be worth roughly US$530-million, and potential buyers include Chinese automakers with European expansion plans.
In 2015, Magna sold a division that made auto interiors for US$525-million to one of the largest global players in that specialized sector, Spain’s Grupo Antolin. At the time, Magna’s then-CEO, Don Walker, said “this transaction is consistent with our strategy of refining our product portfolio to focus on certain key areas of the vehicle.”
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