General Motors Co. (GM) announced that it will receive $3.8 billion by selling its stake in auto parts maker Delphi Automotive. Delphi, which spun off from GM in 1999, completed its bankruptcy restructuring in four years till it was purchased by a group of 80 private investors in October 2009.
Elliott Management and Silver Point Capital bought a controlling interest in Delphi. Delphi paid for the deal with cash from a $3 billion credit facility from JP Morgan Chase (JPM).
The deal would bolster GM’s balance sheet and increase its appeal to investors. GM revealed it would report a gain of $1.6 billion in the first quarter related to the sale. The company also recorded a gain of $300 million for the quarter by selling preferred stock in its former financing arm, Ally Financial, in March for $1 billion through a public offering.
Delphi recorded revenues of $13.8 billion and earned $1.4 billion before interest, taxes, depreciation and amortization in 2010. Apart from GM, it also bought back $594 million worth of shares owned by Pension Benefit Guaranty Corp. (“PBGC”).
PBGC obtained its interest as a partial settlement of its claims when Delphi terminated its pension plans in bankruptcy court. The PBGC has been paying pension benefits to 70,000 Delphi workers and retirees since 2009.
GM filed for bankruptcy in mid-2009. Post bankruptcy, GM was primarily owned by the U.S. government and Canada government, and by a trust fund providing medical benefits to United Auto Workers (UAW) retirees.
The U.S. government holds a 61% stake, the UAW union holds a 17.5% stake through its Retiree Medical Benefits Trust and the Canadian government holds 11.7%. The remaining shares went to the bondholders of the old company. After bankruptcy restructuring, GM’s remaining assets were put into another entity called Motors Liquidation Company (“MLC”).
In November last year, GM initiated an initial public offering (IPO) of common stock that helped it pay $23.1 billion to the U.S. government. The Treasury has been left with 500 million shares of GM, which is equivalent to 33% stake in the company, down from 61% at the time of bailout.
Recently, MLC exited Chapter 11 bankruptcy, which was formed into four trusts. One of the trusts is responsible for resolving claims of the debtors’ unsecured creditors and allow for the distribution of GM stock and warrants to creditors. MLC owns 10% of GM’s common stock in addition to warrants.
GM, a Zacks #3 Rank (Hold) stock, posted a profit of 52 cents per share in the fourth quarter of 2010, exceeding the Zacks Consensus Estimate by 5 cents per share. In absolute terms, the company turned a profit of $510 million during the quarter in sharp contrast to a loss of $3.52 billion in the comparable quarter of 2009 driven by the recovery in the North American and European automotive markets.
The automaker generated revenues of $36.9 billion during the quarter, which was higher than the Zacks Consensus Estimate of $34.9 billion. Unit sales escalated 11% to 2,173 vehicles from 1,952 vehicles in the fourth quarter of 2009. The automaker occupied a market share of 11.5% during the quarter, up from 11.4% in the year-ago quarter.
JPMORGAN CHASE (JPM): Free Stock Analysis Report
Zacks Investment Research
