GM sells $3.8 billion stake in Delphi

March 31, 2011

GM sells $3.8 billion stake in Delphi

Detroit News Washington Bureau

General Motors Co. said today it has sold its ownership stake in auto supplier, Delphi Automotive LLP – a move that may clear the way for the Troy-based company to go public or eventually sell itself.

GM said it had sold its interest in Delphi for $3.8 billion. GM acquired the stake — called a Class A Membership Interest — in October 2009 in conjunction with the creation of the new Delphi. Delphi also bought a stake held by the government’s pension insurer for nearly $600 million

GM spun off Delphi in 1999 and the auto supplier filed for bankruptcy in 2005. Delphi exited bankruptcy in 2009 as a new firm owned largely by its former creditors.

“These transactions represent an important step in positioning Delphi to continue to increase shareholder value,” said Rodney O’Neal, Delphi president and chief executive officer. “We continue to have significant financial flexibility and remain committed to pursuing opportunities that drive value creation.”

The sale ends a painful period for GM, which had sought to extricate its ties with Delphi for years — only to be forced to reacquire its global steering business in 2009. It sold the business — renamed Nexteeer — to a Chinese government firm last year.

While GM received $3.8 billion, it set aside $12.5 billion in total to deal with Delphi’s winddown during the auto supplier’s bankruptcy stay.

These transactions, funded with cash on the company’s balance sheet and $2.5 billion of new bank debt as part of a $3 billion credit facility provided by J.P. Morgan Securities LLC.

At the same time, the Pension Benefit Guaranty Corp. — the government’s pension insurer — has sold its stake in Delphi for $594 million.

PBGC originally obtained its interest in Delphi Automotive in partial settlement of its claims stemming from the 2009 termination of pension plans of the bankrupt company.

Since 2009 PBGC has been responsible for paying pension benefits to some 70,000 Delphi workers and retirees.

The Delphi pension plans were underfunded by about $7 billion, and PBGC has taken responsibility for $6.1 billion, making it the second largest financial loss in the agency’s 36-year history.

PBGC doesn’t know how this action will affect benefits. It will inform Delphi retirees of their final benefit amount as soon as the complex calculation process is complete.

Nearly 21,000 Delphi salaried retirees lost $600 million when the company terminated its pension plans.

“We are systematically delivering on our commitment to strengthen and simplify our balance sheet,” said Dan Ammann, who officially becomes GM’s senior vice president and chief financial officer tomorrow.

The transaction doesn’t change GM’s day to day relationship with Delphi, which remains one of its largest suppliers. The sale does end all GM ownership in Delphi, said GM spokesman Jim Cain.

GM will report a book gain of approximately $1.6 billion in the first quarter of 2011 related to the sale.

Earlier this month, GM sold its Ally Financial Series A preferred stock for $1.0 billion in a registered public offering. The Ally transaction will result in a book gain of $0.3 billion to be recorded in the first quarter of 2011.

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