Auto supplier Lear is increasing its dividend and expanding its capacity to execute share buybacks in the wake of an activist investor’s bid to force the company to consider splitting up.
Lear announced Tuesday that it has increased its share-buyback fund to $1 billion, up from $339 million at the end of the year. Its common-stock dividend will rise by 25 percent.
The move comes as the company has come under pressure from Mick McGuire, founder of the hedge fund Marcato Capital Management, to consider breaking up into electrical and seating businesses. McGuire earlier this month delivered a letter to Lear management listing his demands.
Although the company did not describe Tuesday’s move as a response to McGuire, the latest move reflects a bid to assure investors that Lear shares are a good investment.
“The Lear Board of Directors and management team are committed to delivering consistently improving financial results and superior returns to shareholders,” Henry D. G. Wallace, Lear’s non-executive chairman, said in a statement.
“The Board believes that the company’s balanced strategy of investing in the business, pursuing complementary acquisitions and consistently returning capital to shareholders, while maintaining a strong and flexible balance sheet will allow Lear to profitably grow, create significant value and further strengthen our competitive position in the market.”
Lear has returned more than $2.1 billion to shareholders since the auto supplier began its share-repurchase and dividend programs in 2011. According to the company, the shareholder return over the past five years tops 203 percent — more than double the S&P 500 return for the same period.
Lear’s move raises the chance of a battle with McGuire, who believes the company’s shares are undervalued.
The increased share-buyback fund gives Lear a set of options to repurchase stock, although it has not revealed official plans to do so.
Lear was the eleventh-largest auto supplier in the world in 2013, according to Automotive News.
On Tuesday, Lear shares dropped 41 cents to $108.29.