Novice Investing - Any takers for Magna?

Date: Monday 01st 2008f December 2008 05:20:27 PM

Any takers for Magna? - 10/23/2006

By: Novice Investing Staff

The previously defunct Delphi Corp. reportedly is being acquired by Ripplewood Holdings LLC for a sum of $ 10 Bililon. That sounds like a rich bid considering the mess that put it into bankruptcy court. Delphi went into bankruptcy in October2005 and it has since outline plans to cut business lines and negotiate with union plants. However, a closer look into Delphi's income statement reveals that it has revenue of $ 26.9 Billion in fiscal 2005.

Well, that remains us of Magna International Inc. (MGA). Our stock portfolio recommendation is still way below our fair value predicted before we include it in our portfolio. However, it is of similar size with Delphi. In fiscal year 2005, it reported a net revenue of $ 22.8 Billion and $ 639 Million in profit. At this point, it is trading at around 8.17 Billion market capitalization.

Of course, Ripplewood Holdings might have its own reason to buy Delphi. It depends much of its revenue from General Motors Corp. (GM). GM is less likely to move away its dependency from Delphi anytime soon. Thus, Delphi has a leverage over GM in short to medium term. Further, Ripplewood might think that it can work out a deal with Delphi's union auto workers, which will cut its cost structure. Those are valid points. However, if you look at Magna, it does not have all of Delphi's trouble and yet, it can reported a decent profit and is valued at much less than $ 10 Billion that Delphi is being sold for. Do you see a disconnect here? The report shows that Delphi will be cutting down its business lines. As one of the largest auto part suppliers, our bet is that Magna will get some of the businesses left by Delphi.

Delphi is either being bought out at an expensive price, or Magna stock is currently a bargain right now. Time will tell.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Magna International Inc. (MGA) or any other securities.

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