General Motors stock dives; Opel sold

Saturday, May 30, 2009

General Motors stock dives; Opel sold

Shares fall under $1; deal agreed with Magna

Robert Snell and Christine Tierney / The Detroit News

Shares in General Motors Corp. sank below $1 Friday on what many investors anticipated would be their last trading day before an all-but-certain bankruptcy filing by the biggest U.S. automaker.

GM officials scrambled to conclude deals with creditors and with the United Auto Workers and arrange asset sales in an apparent effort to speed up an anticipated bankruptcy.

The UAW said Friday that GM members ratified cost-saving concessions. GM also reached an agreement Friday to sell most of its German carmaker Adam Opel to a group led by Canadian auto supplier Magna International Inc. The German government will provide $2.1 billion in financing to support the sale.

Expectations that a bankruptcy was imminent mounted Friday after GM said CEO Fritz Henderson would host a news conference Monday in New York City, where the company is expected to file under Chapter 11 of the U.S. bankruptcy code.

GM’s market capitalization — the value of its outstanding shares — shrank to about $530 million, or 1 percent of what it was in 2000, as the stock slid 37 cents to close at 75 cents.

On the New York Stock Exchange, GM is still one of the stocks making up the Dow Jones Industrial Average. But investors have been unloading the shares for months. The stock has fallen more than 90 percent in the past year as a global sales downturn derailed GM’s recovery efforts. The company has lost nearly $90 billion since 2005.

In recent weeks, GM executives have sold several hundred thousand shares. Last month, the manager of GM’s employee stock fund for nearly 30,000 workers and other participants, sold all its GM stock, or about 75 million shares, on growing bankruptcy concerns. The shares were sold over a 25-day period at an average price of $1.87 each.

As GM’s outlook worsened, the German government moved to secure a future for Opel, one of GM’s first overseas acquisitions.

Magna, GM’s preferred bidder for Opel, submitted a bid jointly with Russia’s Sberbank Rossii valued at 700 million euros, or about $1 billion, last week. Under the terms, GM would retain a 35 percent stake in the German carmaker it acquired in 1929. Sberbank would have 35 percent, Magna 20 percent and Opel employees 10 percent.

The deal also brings in the Russian automaker GAZ, controlled by Russian billionaire Oleg Deripaska. GM recently discussed possible production ventures with GAZ.

Italy’s Fiat SpA, the other major bidder for Opel, expressed concern Friday at a new request to provide funding on an emergency basis for Opel. That, according to a company statement, "would expose Fiat to unnecessary and unwarranted risks."

In Germany, Finance Minister Peer Steinbrueck said a plan to have Magna lead a rescue of Opel had been approved. The German federal government and several state governments will provide a $2.1 billion bridge loan. "A solution has been found to keep Opel running," he said, according to the Associated Press.

The choice was not unanimous. According to Bloomberg News, Economy Minister Karl-Theodor zu Guttenberg said he would have preferred another solution, without elaborating.

Opel employs 25,000 people in Germany.

Like Chrysler, which declared bankruptcy late last month, GM is trying to conclude debt-reduction and other deals in an apparent effort to shorten the length of a bankruptcy. GM, like Chrysler, is also expected to transfer its most valuable assets and brands to a so-called "New GM" during the process, under Section 363 of the Chapter 11 bankruptcy code.

In an announcement underscoring its efforts to emerge a more competitive company, GM announced Friday that it would build a small car in the United States at an idled union plant.

GM did not identify the plant but said it would produce 160,000 small cars a year.

Analysts said the new small car appears to be an effort on GM’s part to compete with Ford Motor Co.’s new Fiesta subcompact as well as to meet strict new mileage standards.

The U.S. government has proposed to sweeten an offer to holders of $27.2 billion in unsecured GM debt, to give them 10 percent of equity and warrants to buy another 15 percent.

The government also plans to inject additional cash into GM, on top of $19.4 billion in federal loans. Two analysts said this week the additional cash likely is intended to cover the company’s unfunded pension liabilities.

"We suspect that the New GM will also be responsible for GM’s legacy liabilities," Kirk Ludtke, an auto analyst at CRT Capital Group, wrote in a report. "At year-end 2008, GM’s unfunded pension and other post employment benefits (OPEB) liabilities were $25.2 billion and $28.9 billion, respectively. Although the agreement between GM and the UAW is designed to eliminate about $20 billion of the unfunded OPEB liability, it appears that a sizable unfunded OPEB liability will remain with the New GM."

Himanshu Patel at J.P. Morgan said boosting GM’s cash position would remove "the risk of a political firestorm" if GM needed more aid after bankruptcy.

He said the additional cash would cover GM’s estimated required pension contributions of $12.3 billion in 2013-14.

The auto task force has cautioned that GM’s future pension costs, which include $6 billion payments due in 2013 and 2014, are "unsustainable" and would require GM to sell 900,000 additional cars each year.

The UAW told its members this week that GM won’t terminate their pension plan.

A total of 673,000 people are covered by GM’s pension plans.

If GM terminated its hourly and salaried pension plans, the Pension Benefit Guaranty Corp. would assume $4 billion of the $20 billion that would be unfunded, the agency said.

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