Lear Corporation · NYSE:LEA
Lear — Merger or Acquisition (May 2007)
45 slides from Lear's merger presentation, May 30, 2007
Slide 1: Review of Lear / AREP Merger Proposal
Review of Lear / AREP Merger Proposal May 30, 2007
Slide 2: Outline
Outline Background Strategic Planning Process Long-Range Plan Merger Proposal Shareholder Recommendation
Slide 3: Background
Background
Slide 4: Lear Profile
Lear Profile Founded in 1917 LBO in 1988; public in 1994 $17.8 billion global automotive supplier $14.6 billion in core Seating and Electronic and Electrical businesses Strong market position in core businesses 17 major acquisitions since 1994 Lear ranks #130 among the Fortune 500 More than 90,000 e
Slide 5: Product Segments
Electronic and Electrical 2006 Sales: $17.8BN 2006 Sales: $11.6BN Seating Manufacture, assembly, design and engineering of vehicle seating requirements Produces seat systems and components for automobiles and light trucks Fully-assembled seats on a JIT basis; structures and mechanisms; cloth, vinyl
Slide 6: Competitive Position
Competitive Position #2 position in North America and Europe* Solid foothold in Asia, particularly in China and India Strategy to grow component capabilities in low-cost countries Opportunities to leverage structural cost advantages Organic and acquisition growth opportunities in components Growth w
Slide 7: Geographic And Customer Mix Of Sales 2006
North America ROW Europe East 0.55 0.09 0.36 North America 55% Europe 36% Rest Of World 9% Geographic And Customer Mix Of Sales 2006* Big Three All other East 0.843 0.157 Big Three 84% All Other 16% Worldwide Sales Mix Customer Mix in North America * Lear's reported net sales, including Seating, Ele
Slide 8: Trend Of Net Sales
Trend Of Net Sales 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 3.1 3.5 4.9 5.5 7.3 9.9 11.3 11.2 11.9 12.9 14 14 14.6 1.25 1.3 1.8 1.8 2.5 2.8 2.4 2.5 2.8 3 3.1 3.2 ($ Billions) $17.8 $3.1 Revenue Growth Has Moderated With Significant Core Product Market Penetration and Intensif
Slide 9: Industry Drivers Of Sales Growth And Financial Performance
OEM Outsourcing Toward Systems / Modules Growth on Higher Contented Vehicles Suppliers' design, engineering and purchasing responsibility Manufacturing outsourcing from OEMs to suppliers Single supplier responsibility Higher value-added, systems and modules integrating multiple components Growth in
Slide 10: North American Market Production Trends
North American Market -- Production Trends For Big 3 And Asian Manufacturers (vehicle in units) Big Three Overall Asian OEM Big Three Light Truck Big Three Truck Production In N.A. Now On Same Declining Trend As Big Three Overall
Slide 11: Lear's Average Content Per Vehicle
Lear's Average Content Per Vehicle* Big Three Light Truck in N.A. Lear's Top Ten Light Trucks in N.A.** North America Europe Asia Avg. Content per Vehicle 673 1300 480 300 35 High N.A. Light Truck Content Per Vehicle Heavily Weighted To Big Three Light Trucks * * Lear's top ten light truck platforms
Slide 12: Correlation Between Light Truck Production And Core Operating Earnings
High Correlation Between N.A. Big Three Light Truck Production And Lear's Core Operating Earnings* Core Operating Earnings N.A. Big Three Light Truck Production 6.0 6.6 Lear Core Operating Earnings (in millions) # of N.A. Big Three Light Trucks (vehicles in units) * Core operating earnings reflects
Slide 13: Automotive Industry Environment Has Become More Challenging
Since 2005, The Automotive Industry Environment Has Become Even More Challenging Increased foreign competition and other effects of globalization Shifts in consumer purchasing patterns, particularly with respect to light trucks and SUVs in North America Increased energy prices Increased price of key
Slide 14: Raw Material Prices And Distress In Supply Base
Industry Challenges Raw Material Prices And Distress In Supply Base Sustained Increases in Commodity Prices 2003 2004 2005 2006 bankr. 2 4 14 10 cessation 6 8 11 5 high risk 0 10 21 30 West Cessation of Operations High Risk Bankruptcies Increased Distress Within Lear's Supply Base Based on Lear's in
Slide 15: Big Three Restructuring / Turnaround Plans
Summary Of Big Three Major Restructuring / Turnaround Plans General Motors - "Turnaround Plan" Reduce 30,000 hourly jobs and close 12 facilities by 2008 (9 assembly, stamping and powertrain plants and 3 parts facilities) Capacity reduction in North America of 1 million units Ford - "Way Forward Plan
Slide 16: Speculation About Lear's Viability
In Early 2006, Volatile Industry Conditions Drove Speculation About Lear's Viability Lear in the News "Lear was among the many auto suppliers that were badly bloodied in 2005, as vehicles sales at General Motors Corp. and Ford Motor Co. tumbled and the cost of materials rose. . ." -- Wall Street Jou
Slide 17: Strategic Planning Process
Strategic Planning Process
Slide 18: Strategic Planning Process Initiated Mid-2005
Strategic Planning Process Initiated Mid-2005 To Address Industry Challenges Mid-2005 Strategic Planning Activities Launched major restructuring initiative Explored strategic alternatives for Interior business Developed three-year financial plan Engaged advisors and obtained outside perspectives Ded
Slide 19: Primary Elements Of Strategic Planning Process
Primary Elements Of Strategic Planning Process* Detailed strategic plan Review of long-term capital structure Formulation and execution of plan for Interior segment Restore financial performance to historical levels Ensure stability, sufficient liquidity and capital resources New operating model for
Slide 20: Near-Term Actions Taken To Improve Shareholder Value
Near-Term Actions Taken To Improve Shareholder Value Announced $250 million Restructuring (June 2005) Announced framework agreement with W.L. Ross regarding Interior business (October 2005) Completed $2.7 billion financing transaction (April 2006) Announced European Interior business joint venture (
Slide 21: Share Price Response To Shareholder Value Initiatives
Feb. 2, 2006 Lear's Share Price Has Responded Favorably To Shareholder Value Initiatives Feb. 2, 2007 $25.25 $34.67
Slide 22: Long-Range Plan
Long-Range Plan
Slide 23: Evolution of Lear
2000 - 2005 1994 - 1999 2006 - Forward Seat Manufacturer Evolution of Lear Total Interior Capability Product-Line Focused; Global, Cost Competitive Footprint Strategic Partner Systems Integrator Supplier Strategic Acquisitions Restructuring / LCC Footprint Core Product Focus / Vertical Integration D
Slide 24: Long-Range Plan Summary
Long-Range Plan Summary* Restructuring / Shift of Capacity to Low Cost Countries Core Product Focus / Vertical Integration Sales Diversification and Growth Requires coordination and support of multiple constituencies (customers, supply base, unions, etc.) Phased approach required given operational c
Slide 25: Long-Range Plan Assumptions
12.2 Lear Long-Range Plan Assumptions Big Three Car and Truck 13.5 10.2 10.9 10.6 17.0 15.9 Total Car and Light Truck Production 14.9 17.2 15.3 Key Assumption Of Long Range Plan: N.A. Industry Production (July 2006)* Industry upturn in 2007 and growth back to peak levels (17.0 million) Big Three sta
Slide 26: Global Restructuring Initiative
2005 2006 2007 Outlook 104 100 100 East West North Long-Range Plan Global Restructuring Initiative* Lear's major restructuring initiative was launched in mid-2005 in response to depressed industry conditions, changing market trends and significant customer restructuring actions and is expected to to
Slide 27: Structural Cost Reduction Plans
Long-Range Plan Structural Cost Reduction Plans* U.S. / Canada / W. Europe Mexico / E. Europe / Asia Significant Shift Of Lear's Global Footprint - Major Execution Challenge And Additional Investment Required Please see slide titled "Forward-Looking Statements" at the end of this presentation for fu
Slide 28: Long-Range Plan Capital Spending
Long-Range Plan Capital Spending (July 2006)** 2001 2002 2003 2004 2005 2006 2007 Plan 2008 Plan 2009 Plan 2010 Plan Seating 168 182 262 342 378 249 259 235 252 227 Electrical / Electronics 46 83 108 116 103 77 84 78 79 70 HQ / Other 16 9 32 17 45 11 6 16 11 11 168 183 262 342 377 249 246 235 250 22
Slide 29: Organic Sales Diversification Continues
Organic Sales Diversification Continues Through Planning Period; Acquisitions Necessary For More Meaningful Change Long-Range Plan (July 2006) Continue To Diversify Regional And Customer Sales Mix* 2002 2006 2010 Big Three Other East 0.87 0.13 Big Three Other East 0.8 0.2 Big Three Other Big Three O
Slide 30: Merger Proposal
Merger Proposal
Slide 31: Merger Proposal
Merger Proposal Mr. Icahn first expressed an interest in acquiring Lear in January 2007 Strategic planning process was well underway Special committee of independent directors was formed to oversee negotiations with Mr. Icahn and to evaluate other options Special committee engaged J.P. Morgan, Everc
Slide 32: Revised Financial Outlook For Core Business
Long-Range Plan Revised Financial Outlook For Core Business* Long-Range Plan -- Initial Status (July LRP)** 2007 2008 2009 2010 Net Sales............................ $14,894 $14,806 $14,492 $14,910 EBITDA.............................. 879 925 1,010 1,089 Operating Income............... 542 585 684 7
Slide 33: Industry Risks And Execution Considerations
Long-Range Plan Industry Risks And Execution Considerations* Key Industry Risks Weaker U.S. economy or possible recession Permanent capacity reductions by Big Three limit upside potential Uncertainty surrounding Big Three labor relations Viability of Big Three dependent on major turnaround in profit
Slide 34: Evaluation Of Proposal
Evaluation Of Proposal Special committee and Board thoroughly evaluated Icahn offer (11 meetings prior to agreement) July 2006 valuation analysis of Long-Range Plan indicated that stock was trading near full-value Since July 2006, industry environment in N.A. has worsened, but capital markets have i
Slide 35: Valuation Analysis
provect Lonceow LEAR. “Trading comparables 1 4.755.754 2007 EEDA (8107 ‘Transaction comparable? §95.5:6.5 20066 EBITDA (575mm) ocr? ‘Long range pan wth current industry outlook Nome cr "Long ange plan with July 08 dusty outlook “Analyst pric targets as of Feb.2 St.weok trading range as of Feb.2 0 st
Slide 36: Security Analysts' Outlook For Lear And The Big Three
Security Analysts' Outlook For Lear And The Big Three Not Positive Security Analysts' Ratings at the Time of Icahn Offer Buy Hold Sell Auto Suppliers Lear 8% 67% 25% JCI 50% 50% 0% 10 Major Suppliers 25% 61% 14% Automotive Manufacturers Big Three 15% 46% 39% Toyota 100% 0% 0% Source: Thomson Financi
Slide 37: Security Analyst Price Targets For Lear
Calyon Baird UBS B of A Lehman Deutsche Bank Credit Suisse Analyst Consensus Citigroup KeyBanc East 16 24 26 26 27 28 29 29 34 37 Security Analyst Price Targets For Lear As of February 2, 2007 Source: Thomson Financial
Slide 38: Proposed $36 Share Offer Represents Significant Premium
Proposed $36 Share Offer Represents Significant Premium Over Lear's Recent Trading Range 2/2/2007 2/2/2006 Proposed offer represents a significant premium over Lear's prior 1-year trading range: Price Premium Announcement of bank financing commitments 3/29/06 $18.49 95% Average price one-year prior
Slide 39: Offer As A Multiple Of Projected 2007 And 2008 Earnings
Proposed Offer Represents A Significant Multiple Of Lear's Projected 2007 And 2008 Earnings* 2007 2008 0.062 0.061 East West North 2007 2008 0.104 0.097 East West North Multiple of EBITDA** Multiple of EBIT** ** Multiples include factored receivables balance at year-end 2006 of $256 million. * Pleas
Slide 40: Opportunity To Solicit Alternative Bids
Opportunity To Solicit Alternative Bids Merger agreement provided for a 45-day period for Lear to actively solicit alternative bids Board engaged two investment banks (J.P. Morgan and Evercore) to aggressively solicit alternative bids Management presentation developed and included along with other c
Slide 41: Shareholder Recommendation
Shareholder Recommendation
Slide 42: Summary Of Investor Considerations
Summary Of Investor Considerations Lear is a great company operating in a dynamic and volatile industry, particularly in North America Company engaged in a process for over one-year that provided the foundation necessary to evaluate the Merger Proposal Company has implemented near-term actions to re
Slide 43: Non-GAAP financial measures explanation
In addition to the results reported in accordance with accounting principles generally accepted in the United States ("GAAP") included throughout this presentation, the Company has provided information regarding "income before interest, other expense, income taxes, restructuring costs and other spec
Slide 44: Non-GAAP Financial Information Core Operating Earnings
Non-GAAP Financial Information Core Operating Earnings
Slide 45: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated financial results and liquidity. Actual results may differ materially from anticipated results as a