ITW targets China auto acquisitions

NEW YORK (Reuters) - Illinois Tool Works Inc. (ITW.N: Quote, Profile, Research, Stock Buzz) is looking to acquire Chinese auto suppliers as it projects 20-percent growth in that market and the emergence of China as an export powerhouse for low-cost vehicles, the company's chief executive said on Tuesday.

David Speer, chairman and chief executive of Illinois Tool, said the diversified manufacturer would see revenue growth "in the 20 percent range annually for the next several years at least" in its auto supply business in China.

Speer, speaking by phone to the Reuters Manufacturing and Transportation Summit in New York, said some of that growth in China would come from buying local firms. "A key component of our growth in the auto space in China, will be through acquisitions," Speer said.

Speer said Illinois Tool was working on deals to acquire over 30 companies representing over $1 billion in annualized revenue. Four of those potential acquisitions on Illinois Tool's short list are in China, he said.

China's vehicle output grew almost 13 percent, to 5.7 million units last year. Speer said he expected China was on track toward annual output of between 10 million and 12 million units over the coming four to five years.

"That's going to have a huge impact on our business base there," Speer said. "Ultimately, that's going to become an export base, in our view, for lower-cost vehicles around the world."

In the United States, Illinois Tool is expanding its business with Japanese and South Korean automakers, which have been taking share from Detroit-based rivals in a relatively flat market for vehicle sales, Speer said.

Until 2003, Illinois Tool was prevented from clinching auto supply deals with the likes of Toyota Motor Corp. (7203.T: Quote, Profile, Research, Stock Buzz) and Honda Motor Co. (7267.T: Quote, Profile, Research, Stock Buzz) because of a Japan-based joint venture that was dissolved in 2002.

In 2005, about 15 percent of Illinois Tool's auto component sales were to Asian automakers operating in the United States, compared with 85 percent for the traditional Big Three, he said.

"We have good content with Toyota, Nissan (Motor Co. (7201.T: Quote, Profile, Research, Stock Buzz)), Honda. We've got good content now coming on board with Hyundai Motor Co. (005380.KS: Quote, Profile, Research, Stock Buzz). So, it's a very fast growing part of our business," he said.

Speer said he expected Illinois Tool would see sales gains of over 20 percent to the Asian automakers based on projected new model launches for 2007 and 2008.

"In the next three or four years, you're going to see our penetration rate with the new domestics become very close to what it is with the Big Three," he said.