The deal:
“This deal strongly favours the government and the unions”
US to take majority GM stake
By John Reed in London and Bernard Simon in Toronto
Financial Times
Published: April 27 2009 14:12 | Last updated: April 27 2009 19:11
The US government is to take a majority shareholding in General Motors in a sweeping restructuring plan that involves more plant closures and job losses and an aggressive debt-for-equity swap.
Under the accelerated restructuring, GM will shut 13 of 47 plants by the end of next year, involving an additional 7,000 job losses. The latest job cuts will reduce GM’s US workforce from 61,000 last year to about 40,000 by the end of 2010.
The carmaker, which lost its crown as the world’s biggest carmaker to Toyota last year, is also to close its 83-year-old Pontiac brand and cut its dealership network from 6,200 to 3,600 by the end of 2010.
Fritz Henderson, chief executive, said: “The objective here is not to survive. The objective is to develop an operating plan that allows us to win.”
The balance sheet restructuring would lower GM’s debt by $44bn to an estimated $23bn, leaving the government and a healthcare trust managed by the United Auto Workers union with 89 per cent of the equity.
The rest would be mainly in the hands of holders of $27bn of unsecured bonds, who are being asked to swap their holdings for shares and accrued interest. Existing shareholders would be left with a minuscule stake.
The Obama administration’s auto industry task force, which has pushed for more aggressive action, said the revised plan reflected GM’s work over the past month in charting “a new path to financial viability”.
The administration has set a June 1 deadline for GM to produce a viable turnround plan in exchange for further government aid, or face bankruptcy. The carmaker has received $15.4bn in emergency loans and expects the total to rise to about $20bn by the end of next month.
Chrysler, GM’s Detroit-based rival, has until Thursday to come up with a similar plan, whose conditions include completing an alliance with Italy’s Fiat.
Under GM’s latest proposal, Washington would swap half of its loans for equity. The task force said it had yet to decide on the future status of its investment. Mr Henderson left open the idea of government representation on the board. He said Kent Kresa, interim chairman, was working on a new board structure.
He added: “The Treasury has not demonstrated any interest in actually running the company. They want to make sure the company runs well for the shareholders and various constituencies”.
He repeated that GM’s preferred option was to stay out of bankruptcy.
But the carmaker warned in a letter to bondholders that if the debt-for-equity swap failed to go through by June 1, “we currently expect to seek relief through the US bankruptcy code”. In such circumstances, GM said bondholders might receive no “consideration at all”. GM has set a May 26 deadline for bondholders to respond.
Some bondholders were dismayed by the proposed deal, suggesting there was little incentive to accept.
“This deal strongly favours the government and the unions,” said Pete Hastings, senior corporate bond analyst at Morgan Keegan. “Bondholders have to evaluate whether to take 10 per cent now or see if they can find a more favourable split with the government and unions with a friendly bankruptcy judge.”
Additional reporting by Nicole Bullock in New York
Copyright The Financial Times Limited 2009
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