An exhaust manifold manufactured by Wescast Industries.
With the auto sector on an upswing, Ontario-based Wescast Industries Inc. is conducting a review of its strategic alternatives.
The company said it has hired a financial adviser, something companies typically do when they are putting themselves up for sale or trying to flush out potential buyers.
"We believe that we're undervalued," chief executive officer Ed Frackowiak said in an interview Thursday. "It's a disappointment that the market isn't seeing what we're all about."
News of the strategic review gave Wescast's stock a 16 per cent pop, closing at $7.75 on Thursday, after hovering around $6 for almost a full year.
If a sale should ultimately occur, it would be the second recent deal in which a Canadian auto parts family exits its historical business. Wescast is currently controlled by the LeVan children of founder Dick LeVan; Frank Stronach exited Magna in 2010.
Wescast's announcement comes on the heels of General Motors' $20-billion (U.S.) initial public offering last fall and comes just as monthly auto sales for the Big Three rebound, which directly affects Wescast because it sells its exhaust systems to these Tier 1 auto makers.
Although this is the first time the public is hearing of this news, Mr. Frackowiak said his company has been in discussions with its board about its options for quite some time.
"It's not something that we've woken up to today," he said. However, "it wasn't opportune to do anything when you're going through a recessionary period and your customers are going through bankruptcy."
Wescast has gone through a dramatic turnaround of late. After a dismal 2009 in which the company lost $22-million, the firm posted a 2010 profit of $17-million earlier this week. Much of the success stems from strength in exhaust manifolds for cars and light trucks.
Because its business is picking up, Wescast announced plans to expand a stainless steel facility in Stratford, Ont., earlier in March. At the time, Wescast said the investment stemmed from new production orders that will kick in early next year.
The company has also been expanding overseas, having invested in a manufacturing facility in China in 2007. That operation turned profitable in the second quarter of 2010 and has continued to ramp up.
Despite the positive signs, auto consultant Dennis DesRosiers cautions against getting too optimistic. "The auto parts sector in Canada is in serious, serious trouble," he said.
The industry "is in the absolute worst position that it's been in, in 50 years, with little or no signs of improvement."
He grants that there is a divide between the parts suppliers that deal with Tier 2 and 3 auto makers, and the likes of Wescast. But that hasn't stopped him from cautioning against buying into flattering media coverage, citing GM as an example. There was a flurry of news stories around its IPO, but the company's shares are now trading below its IPO price.
"That's one of the fundamental problems in the industry," he said. "How do you distinguish between rhetoric and fact?"
During the financial crisis the company was severely hindered by two of its major customers filing for U.S. Chapter 11 bankruptcy, forcing Wescast to shut a southern Ontario facility.
The company has not set a timeline for its strategic review and the company cautions that nothing may come of it.
With files from Greg Keenan
Tim Kiladze