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Takata bidders plan court-led turnaround for Japan business: source

By Naomi Tajitsu

TOKYO (Reuters) - Bidders for Japan's Takata Corp <7312.T> are pushing for a court-mediated turnaround for the embattled air bag maker's domestic business, a source said, a strategy the company opposes and news of which sent its shares tumbling 17 percent.

Takata is in the process of selecting a financial backer as it faces billions of dollars in costs to replace as many as around 100 million potentially defective air bag inflators that have been linked to at least 16 deaths globally.

Earlier in the day, the Nikkei newspaper reported that Swedish air bag maker Autoliv Inc <ALV.N>, and a group led by U.S. auto parts supplier Key Safety Systems (KSS), the two preferred bidding groups for Takata, planned to present their proposals for a court-led restructuring of the Japan operations as early as this week. The source confirmed the plan.

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Potential bidders for Takata have long favoured a court-led turnaround of its Japanese operations, which would cap their exposure to Takata's existing liabilities, estimated by some analysts at as high as $10 billion for recall costs alone.

They have also pressed Takata on a bankruptcy filing for its U.S. unit, which the company is considering, sources have told Reuters.

Takata, though, has said it would prefer a private, out-of-court process for its operations to ensure the ongoing supply of replacement inflators. Under such an arrangement, Takata's share value may not be completely wiped out, which could be favourable to shareholders including the founding Takada family.

Worries of court involvement drove Takata shares down 17.3 percent to close at 717 yen in their biggest one-day fall in nine-and-a-half months. Before Thursday's slide, the shares had risen more than 150 percent over the prior two months, partly on speculation of an imminent settlement in a U.S. criminal investigation.

The Japan operations account for around 12 percent of Takata's total operating income.

In a statement, Takata said it had nothing to disclose following the newspaper report.

A financial source briefed on the matter told Reuters that U.S. buyout firm Bain Capital was bidding with KSS and Japan's Daicel Corp <4202.T> to rescue Takata. A Bain spokeswoman declined to comment on whether it remained in the running to sponsor Takata. Daicel also declined to comment.

SHARING OF COSTS

A steering committee appointed by Takata nearly a year ago has retained investment bank Lazard Ltd <LAZ.N> to advise the search for a financial sponsor for the troubled company, which is at the centre of the world's biggest automotive safety recall.

The process to find a backer has been complicated by the fact that the parts maker faces a number of liabilities stemming from the recalls, which began around 2008.

Automakers affected by the recalls, including Honda Motor Co <7267.T>, Toyota Motor Corp <7203.T>, and Ford Motor Co <F.N>, have been paying for the costs to recall the inflators.

If Takata were to be held solely responsible for the recall, it could be on the hook for around $10 billion, according to estimates from industry experts.

While court involvement may mean car makers may be reimbursed smaller amounts as recall costs by Takata, the Nikkei said they still support such a path because it will provide them with legal cover when convincing shareholders to approve any deal.

"Takata has said its preference was for an out-of-court settlement with creditors, but that doesn't mean that this is how things may turn out," an executive at a Japanese automaker and a Takata client said.

While its financial future remains in limbo, Takata is also struggling to manufacture the massive supply of replacement inflator parts needed for the recalls, and has enlisted competitors, including Autoliv, ZF TRW and Daicel, to help with production.

Last week, Takata agreed to plead guilty to U.S. criminal charges that it manipulated inflator test data provided to its automaker clients, and pay a $1 billion fine which includes compensation paid to victims and automakers.

Automakers have said that the compensation outlined in the U.S. settlement would do little to cover their recall costs.

"It's just a drop in the bucket compared with the recall costs we have been paying," an official at another Japanese automaker said.

(Reporting by Chang-Ran Kim, Naomi Tajitsu and Maki Shiraki; Additional reporting by Taiga Uranaka; Editing by Himani Sarkar and Muralikumar Anantharaman)