Icahn Sweetens Offer for Federal-Mogul Shares

In a terse letter to the Federal-Mogul Holdings Corp. (NASDAQ: FDML), activist investor Carl Icahn’s Icahn Enterprises L.P. (NASDAQ: IEP) on Monday morning raised its offer for the remaining shares of Federal-Mogul that Icahn doesn’t own from $7 to $8 a share. Icahn already owns about 82% of the auto parts maker.

At the time of Icahn’s February offer the $7-per-share price represented a premium of more than 40% to the price of the stock. Icahn also had agreed that the offer required approval from a special committee of independent directors, along with a vote of a majority of non-Icahn held shares.

Shortly after the February offer, Federal-Mogul cancelled a planned spin-off of its motor parts business from its power-train business after the separation had been on the boards for more than a year. The chief executive of the motor parts division said the cancellation was due to lousy market conditions, not the offer from Icahn.

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The same terms apply to Monday’s offer, and Federal-Mogul said it would consider the new offer.

What is there to think about? When Icahn first offered to buy the rest of Federal-Mogul, an analyst from private equity firm Gamco Investors (Gabelli) thought that the company’s restructuring in preparation for the proposed spin-off was beginning to pay off and that increased profitability was on its way. In March, Gamco reported that it owned about 4.6% of Federal-Mogul’s stock, so you could say that it has a dog in the hunt. Gamco’s analyst, Brian Sponheimer, put a value of $13 per share on the stock.

Shares traded up 7% at $8.73 Monday morning and have traded as high as $10 a share following the February offer. That’s still below the 52-week high of more than $12, but well above the sub-$4 per share price just prior to the February bid.

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