With shareholders threatening to block his buyout deal for
, billionaire investor Carl Icahn raised his offer on Monday and set the stage for a takeover attempt if his bid is rejected.
Icahn's American Real Estate Partners affiliate agreed to increase its buyout price for the auto-parts maker to $37.25 a share from its previous offer of $36. As a result of the amended merger agreement, Lear said it will postpone a shareholder vote on the deal until next Monday. Previously, the vote was scheduled to take place at the company's annual shareholders meeting on Thursday.
If shareholders reject the new offer, it will be rescinded. But Icahn, who is already Lear's largest shareholder, may be trying to buy his own majority.
In return for the extra premium, Lear agreed to allow Icahn to increase his stake in the company to 27% from 24% without triggering legal provisions in place to block a takeover attempt. The company already let him exceed the original 15% limit last October.
Moreover, if holders of a majority of Lear's outstanding shares don't approve the buyout, American Real Estate Partners will also be entitled to $12.5 million in cash and 335,570 shares of Lear common stock valued at $12.5 million. Previously, Icahn's bid had a $100 million break-up fee if the company found another buyer, but no payment was in place if shareholders rejected the deal.
The original offer, which amounted to a 4% premium to the stock's market price at the time it was made in February, won support from Lear's board of directors, but it
drew the ire of the company's major shareholders.
The California State Teachers' Retirement System, which owns almost 2% of Lear, said late last month it will vote against the deal. Richard Pzena, CEO of Pzena Investment Management, a hedge fund that owns a 14% stake in the company, has been a more vocal critic of the agreement, calling it "horrendous."
Pzena says Icahn's new offer is, "nice, but not enough for us to change our minds." He also says the extra break-up fee paid to Icahn if the deal is rejected is "very coercive."
"Presumably, the board concluded that this was going to be voted down and they were going to allow shareholders to make the choice, but now they're saying that they're going to charge us a penalty if we don't vote in favor of this," says Pzena. "It's remarkable to me."
Pzena has portrayed Icahn, who made a name for himself in the 1980s as a corporate raider, as a private-equity buyer teaming up with Lear's management to steal the company away from shareholders at a discount while its business is in a downturn.
Daniel Ninivaggi, Lear's executive vice president and general counsel, disputes that notion.
"Icahn is one of the most difficult people I've ever worked with," says Ninivaggi. "Negotiating with him is painful. He is extremely tough, and this latest improvement took 10 days to negotiate and there were a lot of bumps along the road. Anybody who thinks that we have any kind of sweetheart relationship with Icahn is completely off base."
Icahn could not be reached for comment on his latest offer.
"It wasn't clear that we would have enough shareholder support to get
the original offer approved," says Ninivaggi. "We're just trying to get shareholder support with the best deal we can.
Icahn showed a lot of flexibility here to get shareholder support. Obviously there have been some criticisms of the deal from some shareholders, but we think there is more support for the transaction than some believe."
The new offer raises Icahn's $2.8 billion bid to $2.9 billion. Pzena said in a recent letter to Lear's management that he estimates the company's value to be closer to $60 a share, or roughly $4.6 billion.
Shares of Lear recently were trading up 81 cents, or 2.3%, to $36.67.