Johnson loses nothing by buying the parts operations or delaying Visteon's eventual bankruptcy emergence.
Johnson Controls (NYSE: JCI) has confirmed that it sent Visteon Corporation (OTC: VSTNQ) a letter late last week that said it remains interested in pursuing its rejected proposal to buy some of the bankrupt company’s assets. It gave no further details on how it would enhance the $1.25 billion cash bid for Visteon’s electronic and interior businesses, leaving the climate control operation behind.
The businesses JCI wants generated more than $4 billion in sales during 2009, the worst automotive market in decades. In 2009, Visteon had product sales of $6.42 billion – down $2.7 billion from the prior year. There clearly is upside potential for the eventual owner.
The latest development complicates what is already a long running bankruptcy that was filed under Chapter 11 in May of 2009. Shareholders and bondholders are currently vying to see who will control the plan that will let Visteon emerge from receivership. At stake is ownership of the assets, including the ones that JCI wants to buy – or steal, depending on your point of view.
It also could be a business tactic since Johnson Controls is a direct competitor that stands to benefit by introducing delay or complexity into the Visteon reorganization process.
Visteon, the former Ford Motor Company parts maker, has used bankruptcy to improve its balance sheet, and its first-quarter profit rose to $233 million from $2 million a year earlier. The businesses in question are largely based in China, now the world’s largest auto market.
A Ford spokesperson declined to comment specifically on the JCI Visteon issue.
“JCI is a strong company and one of our long-term suppliers. At the same time, Visteon and Ford have a long business relationship. We have been, and remain, supportive of Visteon as it works through its bankruptcy restructuring process,” the spokesperson said.
“Whatever happens, Ford is going to want to make sure that Visteon remains viable, and at some point will make its views known to the court,” said Joe Phillippi of the AutoTrends consultancy.
Ford, of course, has already taken extraordinary steps to protect itself from Visteon’s travails, once its single largest supplier and still a major business partner.
In October of 2005, Ford created a temporary company to hold, manage and sell off 17 plants acquired from Visteon, then Ford’s largest single supplier by far. Ford has since sold off some of the businesses.
Last week, a U.S. Bankruptcy Judge in Wilmington, Delaware, delayed a decision on whether to approve a plan for Visteon bondholders to buy 95% of the new stock until June 14. The Judge agreed to give shareholders time to create a competing stock plan.
In the interim, a battle of press releases is well underway between Visteon and JCI, with carefully crafted language from Visteon lawyers trying to make a case against the sale, claiming it would hurt creditors and delay its emergence from bankruptcy. Visteon said it issued the press release on the rejection because JCI had made its proposal public.
“The Board of Directors of Visteon has studied your [JCI] proposal carefully and has unanimously concluded that our stakeholders, as well as our customers and employees, are best served by moving forward with our previously announced Plan of Reorganization to emerge from bankruptcy as a strong, independent, stand-alone company,” Visteon Chairman and Chief Executive Officer Don Stebbins said in a letter to Johnson Controls Chairman and CEO Stephen A. Roell. The text of the letter was released in the statement.
Visteon’s chairman also flung a legal gauntlet of sorts.
“I am concerned that JCI’s recent contacts with our customers and aggressive characterizations of your proposal could potentially damage our business and relationships with key customers,” said Stebbins. “I assume these communications are occurring without your knowledge and ask that you personally see that such communications end.”