KeyBanc: 'Increased Likelihood' Magna Will Take Direct Minority Interest in Chrysler

KeyBanc Capital Markets analyst Brett Hoselton has been sticking out his neck for two months with research reports on Magna International Inc. (MGA) that make for compelling reading but cite unnamed sources.

Other analysts have said Mr. Hoselton is a ballsy guy and that they would be cautious in putting out the kind of reports he’s releasing on Magna and its bid for Chrysler Group (DCX).

Mr. Hoselton’s latest note, put out Friday, claims there is now an “increased likelihood” that Magna could take a direct minority interest in Chrysler. Why? In part, because the United Auto Workers union, whose blessing is crucial for any bidder hoping to win Chrysler, has approached Magna with a preliminary package of concessions to facilitate a joint Magna-Onex Corp. takeover of Chrysler, Mr. Hoselton says.

The winning buyers would likely offer the union guaranteed employment levels and relocation packages in return, he says.

Mr. Hoselton said he believes there are potential benefits to Magna in buying a stake in Chrysler, including saving on material costs, improving capacity utilization and getting exclusivity to supply components for Chrysler vehicles.

Like other analysts, he also warns of the risks, including the potential loss of business from General Motors Corp. (GM) and Ford Motor Co. (F) if those companies view Magna as a new competitor in auto assembly. Magna would be taking on increased operating and financial leverage in buying Chrysler, which could result in an automaker-like valuation, Mr. Hoselton said.

The analyst maintained his “hold” rating on Magna shares.

MGA 1-yr chart: