Lear Corp. (LEA - Snapshot Report) has signed an agreement to purchase Eagle Ottawa, the largest global supplier of automotive leather. The company will pay $850 million for the deal, on a cash and debt free basis.
Lear Corp. will finance the deal by raising debt, apart from using its cash in hand. The acquisition is expected to close in the first quarter of 2015, subject to attainment of regulatory approvals and fulfillment of other customary closing conditions.
Auburn Hills, MI-based Eagle Ottawa is currently owned by Milwaukee-based investment firm Everett Smith Group Ltd. Its customers include many large automakers such as BMW, Chrysler, Ford Motor Co. (F - Analyst Report), General Motors Co. (GM - Analyst Report), Honda Motor Co., Ltd. (HMC - Analyst Report), Hyundai and Jaguar Land Rover, among others.
The acquisition will complement Lear Corp.’s seating business and increase premium leather capabilities. It will also diversify the company’s customer mix and enable it to provide significantly customized products. Further, it will provide sales and operating synergies to Lear Corp. and help it to improve the quality of products while simultaneously reducing prices.
Eagle Ottawa records sales of about $1 billion annually. In comparison, Lear Corp. anticipates revenues in the range of $17.6–$17.9 billion in 2014. Thus, the company expects the acquisition to boost its annual earnings per share by about 5%.
Moreover, the acquisition is in line with Lear Corp.’s financial targets. For instance, it is being made at fair market valuation and is expected to be accretive immediately after closure. It also conforms to the company’s gross leverage target.
Currently, Lear Corp. carries a Zacks Rank #3 (Hold).