Many people may remember Visteon (VC, Financial) as the automotive parts company spun off from Ford that fell on hard times during the financial crisis. Today it is a much different company than the Visteon of yore. Given its “special situation” status, having over $60 per share in net cash and a stock price of roughly $100, the stock screened poorly on a statistical basis, enabling the Fund to acquire shares during the quarter at an attractive valuation of around 6.4 times pro forma adjusted EBITDA as the company continued on its transformational path. With its large net cash position, Visteon certainly meets our hurdle of a solid balance sheet. More excitingly, we think the transformation of the company has set it up to accelerate its book value compounding.
Visteon has transformed itself into a singularly focused automotive electronics company, having sold or in the process of selling its interiors businesses and now upon the recent sale of its climate control business. In December 2014, Visteon announced the sale of its 70% stake in Halla”Visteon Climate Control Corp (HVCC) for approximately $3.6 billion to an affiliate of Hahn & Co and Hankook Tire; the transaction closed in June 2015. The company expects to return $2.50 billion to $2.75 billion of cash to shareholders over the next 12 months via a series of buybacks and special dividends, in a very tax efficient manner, with the remainder of the proceeds to be used for growth and some debt reduction. Post the HVCC transaction, Visteon is very well”capitalized, with around 56% of its current market cap in cash, with solid growth prospects longer term given its market position in cockpit electronics, its focus on connected car solutions and given the outlook for the automotive electronics market overall. The company recently lured its new CEO, Sachin Lawande, away from Harman, a company which is known for infotainment and where Lawande had most recently been president of the infotainment division. Further, the company has opportunities to improve margins. Visteon acquired Johnson Controls’ automotive electronics business last year, and is already benefiting from an increase in business wins and re”wins. In addition to increased sales opportunities, there are cost synergies from this acquisition along with other opportunities to reduce operational overhead.
From Third Avenue Management's third quarter Small-Cap Fund shareholder letter.
