From Detroit Free Press

Delphi Corp. won a bankruptcy judge's approval Thursday for a hard-fought labor contract with the UAW and General Motors Corp.

Combined with a new $2.55-billion financing deal that Delphi accepted Wednesday, the Troy, MI-based parts supplier took two major steps this week on its path out of Chapter 11 protection.

But the deal could face opposition, at least from Delphi's second-largest shareholder whose $3.3-billion offer was rejected by Delphi this week.

In U.S. Bankruptcy Court in New York on Thursday, Judge Robert Drain approved a contract that offers Delphi's 4,000 veteran workers a combination of cash incentives in return for leaving the company or taking lower wages. The deal, which would close 10 U.S. plants, also offers severance packages to newer workers.

Drain called the agreement "fair and reasonable," Bloomberg News reported. "The UAW acted very diligently and forcefully to protect its constituents' rights," Drain said, according to Bloomberg.

Meanwhile this week, Delphi's board accepted a financing deal that would usher the company out of bankruptcy. Seven private-equity groups and investment banks, led by Delphi's largest shareholder, Appaloosa Management LP, would inject as much as $2.55 billion into the company by purchasing $975 million in Delphi common stock and more-expensive preferred stock.

The investors also would buy what is left after the company offered to sell $1.6 billion in shares of the reorganized company to current shareholders.

But before accepting that deal, Delphi rejected a higher package of up to $3.3 billion from its second-largest shareholder, Highland Capital.

"Highland submitted an economically superior offer that would have provided more value for all constituencies," Highland said in a statement.

Highland's deal offered more to current shareholders -- 3 million shares instead of the 1.5 million shares in the accepted deal.

A hearing to approve Delphi's deal with Appaloosa is scheduled for Aug. 2 in U.S. Bankruptcy Court in New York.

Companies consider more than just price when negotiating a financing deal, said Kimberly Rodriguez, who leads the global automotive platform for restructuring consultant Grant Thornton LLP. "It all depends on the positions of the different stakeholders," she said, such as the company, creditors, customers and labor.

Delphi chose the proposal that it believed was in the best interest of its stakeholders, said Delphi spokeswoman Claudia Piccinin.

The deal "would allow us to successfully emerge with the greatest speed and execution from Chapter 11," she said.

In a filing that details its proposal, Highland said that it wants to continue talks with Delphi.

Highland also could object to Appaloosa's deal in court, said John Pottow, assistant professor of law at the University of Michigan Law School.

But to make a strong argument, Pottow said Highland would need the support of the committees representing creditors and shareholders in Delphi's bankruptcy.