Lear Has Some Explaining to Do

This column was originally published on RealMoney on Feb. 12 at 9:26 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Carl Icahn is a value investor. He buys assets on the cheap. If he doesn't get a deep discount, then he passes up the purchase.

Before the market opened on Feb. 5, Icahn offered $36 per share in a buyout offer for Lear (LEA Quote). That's less than a 4% premium over the prior closing price of $34.67. The stock rose in anticipation of higher offers until Feb. 8, when trading was halted at $40.07. Lear announced the next morning that it was going to accept the $36 offer.

It's fair to say that Lear's board of directors is familiar with Icahn. With ownership of 17.8% of Lear's shares, he is the company's largest shareholder. Just three months ago, the company sold a private placement of stock to Icahn for $200 million. Also, Lear gave Icahn a seat on its board of directors.

Lear's board is aware of Icahn's reputation as a deep value investor. Implicit in its acceptance of his $36-per-share offer is this: Lear's board believes Icahn has changed his stripes. Pursuant to their fiduciary duty to protect shareholders, Lear directors apparently think that Icahn is now a "full" value investor.

Of course, it's nonsense to say that Icahn has changed. There can be but one reason why Icahn offered to buy Lear for $36 per share. It's because the price represents a deep discount to value.

This is obvious by the structure of the deal. Icahn is buying the company "as is." He's not bringing in new management to facilitate a turnaround. He's not asking for major changes in company operations. He's not bringing synergies to the table to significantly increase efficiency. He's not doing anything to unlock the value of this asset. It follows, then, that Icahn's sole motivation to do this deal is price.

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