ALV Autoliv Inc

TOKYO—Century-old chemicals maker Daicel Corp. has emerged as a top contender in the bidding for air bag maker Takata Corp., people familiar with the matter said, partly because Daicel sees its growth threatened if someone else wins.

Daicel has teamed up with U.S. private-equity firm Bain Capital to bid for Takata, which is seeking a lifeline after it recalled tens of millions of air bags. The air bags can explode and spray shrapnel in vehicle cabins, a problem linked to more than a dozen deaths and more than 100 injuries globally.

A steering committee named by Takata is organizing an auction for the company. The committee is weighing a U.S. bankruptcy filing as one option for addressing recall costs and clearing a path for outside investors, people familiar with the matter have said.

One message from the bidding process is that Takata's business is attractive for a variety of industry players, assuming they can be shielded from recall costs and other liabilities. That is particularly the case for Daicel, which already supplies inflaters for Takata air bags and fears losing out on the business if it loses the auction, said two people with knowledge of the situation.

The Bain-Daicel alliance is one of five bids that cleared the first round. The steering committee has set a meeting in New York Oct. 25-26 where the bidders will present their plans to car makers, people familiar with the process said.

Auto makers are currently shouldering the costs for an onslaught of recalls expected to total nearly 70 million air bags in the U.S. alone.

One of those people said the Bain-Daicel offer was about $3.5 billion, exceeding other bids ranging from $1.2 billion to $2.3 billion. The exact terms of the bids couldn't be learned, and some bidders might be willing to offer more depending on the deal's structure. The committee aims to narrow down the list to two by mid-November and select a finalist by December, this person said.

For Daicel, a particular threat is Autoliv Inc. of Sweden, a major air bag maker that has also submitted a bid for Takata. People familiar with the bidding process said auto makers look favorably on Autoliv's bid because of its experience as a major auto-parts supplier, and auto makers think Autoliv could take over Takata's business with less disruption than Daicel.

But the steering committee is leaning toward the Bain-Daicel bid, not only because of its higher price tag but also because the Bain-Daicel team is seen as more willing to keep Takata's business intact, the person said. Also, the Bain-Daicel bid would be less likely to raise antitrust concerns since Daicel doesn't currently make air bags.

Takata's market capitalization has fallen below $300 million from a peak of $2.7 billion hit months before U.S. federal regulators warned in June 2014 that Takata-made air bags could explode. Nonetheless, it has longstanding customers among major auto makers and several business lines including seat belts and child seats as well as air bags that make it attractive to potential buyers.

Osaka-based Daicel historically made most of its money selling chemicals like acetic acid, best known for its use in vinegar, and products derived from wood pulp, such as cigarette filters.

Several of those business lines are in long-term decline. Global demand for cigarettes is slackening and the chemicals business is threatened by cheaper alternatives in China and India. The stronger yen this year is eating into profits on sales in China, where Daicel has a large cigarette filter business, and other markets.

Daicel's three-year growth plan had called for it to bring in ¥ 500 billion ($4.8 billion) in revenue in the year ending March 2017, but now it says it expects ¥ 444 billion for the year, a slight decline from the previous year.

To return to growth, it is looking to its fast-growing business manufacturing automotive components, including the explosive compounds that go into air bags.

Daicel supplies air-bag inflaters to Takata and Toyoda Gosei Co., a parts supplier for Toyota Motor Corp. Daicel says it is churning out millions of air-bag modules for replacement products owing to the Takata recalls. The company's sales of pyrotechnic devices—a category that includes air bag inflaters—rose nearly 16% in the July-September quarter compared with a year earlier.

Even before the recall, Daicel had hitched itself to Takata as a way to bring its products to companies outside of Japan. That partnership helped Daicel become a major player in the inflater business. In 2012, Daicel bought Special Devices Inc., a U.S.-based air bag component maker, for an undisclosed sum.

The other bidders for Takata are Flex-N-Gate Corp., Key Safety Systems Inc. and U.S. private-equity fund KKR& Co., people familiar with the matter have said.

Write to Atsuko Fukase at atsuko.fukase@wsj.com and Sean McLain at sean.mclain@wsj.com

(END) Dow Jones Newswires

October 17, 2016 07:25 ET (11:25 GMT)

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