KeyBanc Capital: Magna Long-Term Growth 'Difficult To Quantify' After Failed Chrysler Bid

Why did Frank Stronach’s Magna International Inc. (MGA) lose out in its bid for Chrysler? DaimlerChrysler AG (DCX)executives said it was because Cerberus Capital Management beat out other suitors on price and other measures.

But Brett Hoselton, an analyst with KeyBanc Capital Markets, said a recent meeting he had with Magna officials has convinced him that Cerberus won because it got in the door first.

“It appears as if the discussions were at too advanced a stage relative to Magna expressing initial interest,” he wrote in a note to clients Thursday.

Daimler also picked Cerberus because it could complete a deal quicker with the New York private equity group than with other bidders, Mr. Hoselton said.

The analyst also provided some more color about Magna’s deal with Russian billionaire Oleg Deripaska’s Basic Element announced earlier this month. Magna is excited about the deal because it believes it will allow it to be the dominant, first mover among parts makers and contract assemblers in Russia.

Magna believes it could capture roughly US$4,000 in content-per-vehicle in Russia within four years. That compares to about US$800 cpv in North America and US$400 cpv in Europe currently.

Mr. Deripaska’s Basic Element, a massive holding company that owns aluminum producer Rusal and power company Eurosib Power, could also provide substantial raw material and energy saving opportunities for Magna, Mr. Hoselton said. He said certain automakers are already asking Magna if Rusal can provide them with low-cost aluminum.

The analyst has a “hold” rating on Magna shares, arguing that while the Russian deal gives Magna long-term growth opportunities, the upside is difficult to quantify. “In the near term, we believe that uncertainty over margins could be a limiting factor on earnings and the stock.”