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Lear Buys Eagle Ottawa for $850M

Stocks in this article: LEA

NEW YORK ( The Deal) -- Automotive seat and electronics maker Lear (LEA)  said late Wednesday it would acquire leather supplier Eagle Ottawa from Everett Smith Group in a $850 million cash deal that would expand its auto interiors operations and grow its share of luxury seats.

Southfield, Mich.-based Lear said it intends to fund the purchase of Eagle Ottawa through a combination of cash on hand and debt, and said despite the deal it intends to continue with its existing share repurchase plan. The company last year avoided a proxy battle with activists in part by agreeing to an accelerated buyback plan.

Auburn Hills, Mich.-based Eagle Ottawa is the world's largest supplier of automotive leather, generating annual sales of about $1 billion from operations at 19 facilities in 12 countries. The company traces its roots back to the 1860s, when it was formed as a supplier of leather goods for horse-and-buggy operators.

Lear CEO Matt Simoncini in a statement called the deal "another important step in strengthening our core seating business," with the company saying that it expects the purchase to be about 5% accretive to earnings at close.

"This transaction will further enhance Lear's position as a global leader in automotive seating and will create significant value for our shareholders," Simoncini said. "Eagle Ottawa adds global leather design and development resources as well as technical expertise to our existing surface materials capabilities."

This is Lear's second seating deal in recent years, following its 2012 purchase of automotive textile supplier Guilford Mills from Cerberus Capital Management for $257 million. The purchases are part of a broader trend by auto suppliers to build a global expertise in specific segments of the market to accommodate automakers who want to deal with a single supplier worldwide.

Lear has recently been viewed by many as a likely seller and not a buyer, but analysts say the purchase of Eagle Ottawa could open up options for the company down the road. The larger seating business with exposure to more automotive platforms could make Lear more attractive to a consolidator, and the added scale of Eagle Ottawa could make Lear's seating operation large enough to be spun out on its own.

Citigroup Global Markets Inc. and Guggenheim Securities LLC are acting as financial advisers to Lear, with Winston & Strawn LLP serving as legal counsel. JP Morgan Chase & Co. and XMS Capital Partners were advising Everett Smith.

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