DJ INTERVIEW: Valeo plans strategic investments in Russia

DJ INTERVIEW: Valeo plans strategic investments in Russia

Interview with Valeo Chief Executive Thierry Morin

PARIS (Dow Jones) -- French automotive supplier Valeo SA Friday said it has decided to set up production facilities in Russia this year to accompany car-making customers who are setting up assembly lines there to cash in on the booming market.

Valeo Chief Executive Thierry Morin also told Dow Jones Newswires Morin in an interview that Valeo is no longer in a hurry to dispose of non-strategic assets, because of weakening valuations.

Valeo has been absent from Russia up to now, but its big French clients, PSA Peugeot-Citroen and Renault SA, recently have committed to manufacturing investments in the country.

"We will have plants in Russia this year," Morin said. "We are looking at both greenfield sites and partnerships with existing automotive suppliers to get market share and a foothold in their client base," he said.

Valeo already supplies Avtoframos, a Renault affiliate that builds the Logan low-budget sedan near Moscow, where production is expected to nearly double next year to 180,000 vehicles.

Morin said Valeo is also keen to supply OAO AvtoVaz, Russia's biggest automaker, which earlier this year signed a billion-dollar deal giving a 25% stake to Renault. AvtoVaz and Renault plan to bring out their first joint Lada car by the end of 2009.

For its part, Peugeot-Citroen announced plans at the end of last year to build a EUR300 million car-assembly plant at Kaluga, southwest of Moscow, producing 150,000 vehicles annually from 2010, with a possible doubling of capacity at a later stage. Russian car sales are currently running at around 2.5 million vehicles annually, a figure that's likely to grow to 4 million by 2015.

Valeo last year announced that it planned to dispose of assets with aggregate annual revenue of about EUR2 billion, but Morin said spinning off more businesses isn't so urgent now.

"Our EUR2 billion disposal program is focused on activities where we don't have critical size or which do not contribute to our technology strategy, like our cabling business. We are about half way through this divestiture program," he said.

But Morin said new disposals are unlikely in the coming months. "My impression is that from our point of view, the current market environment is more favorable to acquisitions than disposals."

The company recently said it is selling its heavy-duty truck engine-cooling business to a Scandinavian private equity group, and has sold its wiring harness activity to Germany's Leoni AG for an enterprise value of EUR255 million in October, 2007.

Valeo is on the verge of a proxy fight with Pardus Capital Management, its largest shareholder with 19.7% of its capital, which wants the company to dispose of assets without critical size representing as much as 60% of the company's total revenue.

Morin has rejected Pardus' strategy of dismantling Valeo as "nonsense," saying it would be bad for the company, its clients and its shareholders.

Pardus has requested two seats on Valeo's board. Valeo has agreed to allocate one seat to an independent director, but has balked at giving a seat to a Pardus employee, citing conflict of interest concerns, as Pardus has a large shareholding in Visteon Corp., a troubled Valeo competitor that was spun off from Ford Motor Co. in 2000.

People familiar with Pardus' thinking previously have said there's no question of the fund giving up its Visteon stake, and they dispute Valeo's premise of a conflict of interest, pointing out that Pardus has no representation on Visteon's board.

Morin said Valeo wants to take advantage of the current situation to look for potential acquisitions. "Valuations are pretty low and the dollar remains very weak. The U.S. and Japan are two countries where we are looking at several interesting targets," Morin said.

End

25.04.2008 16:00