Valeo quo vadis?

Last Friday, car parts maker Valeo proudly affirmed that its operating profit margin would rise in 2008, from 3.3% last year and 3.6% in the first quarter of 2008, and would reach 6% by 2010. Management acknowledges that 2008 will be a "very difficult year for the car industry" and that raw material prices are a constant challenge. Valeo is betting on continued success of products like "stop and start" and "park4U", which I tended to view as nice-to-have gizmos, and on further geographical expansion, especially in Russia.

Pardus, which is also a Visteon Corp. shareholder, owns just under 20% of the capital of Valeo. In fact, in May 2008, Pardus has committed not to exercise voting rights beyond 20%, should its stake increase in the future. Patrick Faure, an ex-Renault executive, who was the representative of Pardus at Valeo's assembly general meeting, made diplomatic comments involving forgetting past disagreements and focusing on a win-win cooperation for the benefit of all shareholders. Another outspoken shareholder, Guy Wyser-Pratte, is growing impatient and complains that Valeo has not done enough lately to dispose of loss-making business units.

On 2 July 2007, when the discussions with an "investment fund" came to an end, Valeo had promised it would implement the value-creation strategy discussed at the May 2007 AGM: focus on three core activities thanks to targeted acquisitions and disposals. In October 2007, Valeo sold its cabling unit to Leoni, leading to a €200 million reduction in net debt. The group is working on selling its truck engine thermal unit to EQT. Anything else with respect to disposals of non-core activities? Valeo bought Connaught Electronics (which plans sales of about €80 million by 2010) a year ago. Any other acquisition of core activities? Unlike Mr. Wyser-Pratte, I do not have a penny invested in Valeo shares, but I certainly sympathize with him.