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Icahn Associates Raises Stake in Federal-Mogul Holdings

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Apr. 25 2015, Updated 2:07 a.m. ET

Icahn adds to stake in Federal-Mogul Holdings

Icahn Associates boosted its position in Federal-Mogul Holdings (FDML) in March. The fund disclosed 138,590,141 shares, or a 81.99% stake, through an amended 13D filing. The fund held 121,111,976 shares at the close of the fourth quarter ending in December, according to its last 13F filing. Carl Icahn is the chairman of Federal-Mogul’s board.

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Federal-Mogul bullish on demand for aftermarket replacement parts

Federal-Mogul noted in its 10Q filing that “The average age of vehicles on the road in the United States has increased since 2002 from 9.6 years to an estimated 10.7 years in 2014 and is projected to remain relatively constant at approximately 11.8 years through 2020, driving the need for maintenance and repair work and thereby increasing the overall demand for aftermarket replacement parts in the United States.”

Other companies in the aftermarket replacement segment include TRW Automotive Holdings (TRW) and Delphi Automotive (DLPH). Delphi has 1% exposure to the Consumer Discretionary Select Sector SPDR Fund (XLY). TRW Automotive has 0.02% exposure to the iShares Russell 2000 ETF (IWM).

Motorparts and Powertrain divisions

In September 2014, Federal-Mogul announced the separation of its Motorparts and Powertrain divisions into two publicly traded entities. The split was through a tax-free spinoff of the Motorparts division to Federal-Mogul’s shareholders. Icahn noted in a statement that “Upon separation, the newly formed Federal-Mogul Motorparts will have a strong balance sheet with access to large amounts of capital enabling it to pursue synergistic acquisitions in the highly fragmented aftermarket industry.”

Last year, news reports noted that the company’s aftermarket Motorparts business was performing below expectations. The Motorparts division saw a 17% increase in revenue to $822 million in 4Q14. The Powertrain division’s revenue grew 1% to $1.039 billion.

The company also missed on revenue and earnings estimates for its 4Q14 results—despite a 6% increase in net sales.

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Overview of Federal-Mogul

Federal-Mogul is a global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reduction, and safety systems. Its customers include OEMs (original equipment manufacturers) and servicers of automotive, light, medium, and heavy-duty commercial vehicles, off-road, agricultural, marine, rail, aerospace, power generation, and industrial equipment as well as the worldwide aftermarket.

It has two business segments:

  • Powertrain segment – accounted for 57% of the total 2014 net sales. It focuses on original equipment products for automotive, heavy duty, and industrial applications.
  • Motorparts segment – sells and distributes a broad portfolio of products in the global aftermarket. The segment also offers products including braking, chassis, wipers, and other vehicle components.

The next part of the series will highlight the fund’s increased positions according to its 13F filing for 4Q14—beginning with Hertz Global Holdings.

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