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Delphi Revs Up Its IPO

Bankruptcy was a long time ago


Auto parts maker Delphi Automotive, has certainly had a tumultuous history.  In 1999, General Motors (NYSE:GM) spun off the company to shareholders, but it continued to struggle with tough competition and a bloated cost structure.  As a result, the company filed for bankruptcy in 2005.

But Delphi hasn’t gone away.  In fact, the company is now poised for an IPO, which could happen within the next couple weeks.  The price range on the deal is $22-$24 and the plan is to issue 24.1 million shares.

Underwriters include Goldman Sachs and JPMorgan. The shares will be listed on the New York Stock Exchange with the symbol DLPH.

Delphi operates 110 manufacturing facilities and 15 technical centers.  Customers include many of the world’s top auto manufacturers like Daimler, Ford (NYSE:F), GM and Volkswagen.

Over the years, Delphi’s management has put together an aggressive restructuring, implementing lean manufacturing systems and “just-in-time” inventory.  There was also a big shift of the employee base, with 91% now located in low-cost countries.  Consider that roughly 30% are temporary workers, which provides lots of flexibility.  The goal is to build a platform that allows for positive pretax earnings even with low production volumes.

The actions have been getting results.  For the first nine months of 2011, revenue came to $12.1 billion and pretax profit was $1.59 billion.

Going forward, Delphi has some important drivers.  One is the company’s investments in building systems that meet the emerging tough regulatory and compliance requirements for auto parts.  Interestingly enough, the company can often charge premium prices for these offerings.

Another big key is China.  Delphi has operated in the country for two decades.  This has involved painstaking negotiations and complex joint ventures.  But it has been well worth it.  Last year, Delphi generated $1.8 billion in China in 2010.

As the IPO market gets better – as seen with the Groupon (Nasdaq:GRPN) deal – there should be interest in Delphi.  Yet investors need to be somewhat guarded.  Just look at the GM IPO, which came to the market about a year ago.  Since then, the stock has gone from $34 to $24.

So investors should be wary with the Delphi deal, especially as the economy continues to be slow and the company must deal with intense competition, which now include a variety of low-cost operators from Russia, China and Brazil.

Article printed from InvestorPlace Media,

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