GM to Sell Controlling Stake in GMAC to Cerberus-Led Group

General Motors Corp. said Monday it has reached an agreement to sell a 51 percent controlling stake in its financing arm, General Motors Acceptance Corp., to a consortium of investors led by Cerberus Capital Management L.P., and including Citigroup Inc. and Japan's Aozora Bank Ltd. GM expects to receive some $14 billion in cash from the transaction over three years. The deal strengthens GMAC's ability to support GM's automotive operations, improves GMAC's access to cost-effective funding, provides significant liquidity to GM and allows GM to continue to participate in the profitability of GMAC over the long term through its 49 percent ownership stake, GM said in a press release.

From Kyodo News International

NEW YORK — General Motors Corp. said Monday it has reached an agreement to sell a 51 percent controlling stake in its financing arm, General Motors Acceptance Corp., to a consortium of investors led by Cerberus Capital Management L.P., and including Citigroup Inc. and Japan’s Aozora Bank Ltd.

GM expects to receive some $14 billion in cash from the transaction over three years. The deal strengthens GMAC’s ability to support GM’s automotive operations, improves GMAC’s access to cost-effective funding, provides significant liquidity to GM and allows GM to continue to participate in the profitability of GMAC over the long term through its 49 percent ownership stake, GM said in a press release.

The proceeds from the deal are expected to constitute the main financial resources for pressing ahead with the struggling auto giant’s efforts to review its capital alliances with two Japanese partners — Suzuki Motor Corp. and Isuzu Motors Ltd.

Specifically, GM is expected to use the proceeds to finance its wide-ranging restructuring plan, which calls for job cuts and plant closures, among other things, in a move to rebuild its North American operations. GMAC is a wholly owned subsidiary of GM.

The sale of the controlling stake in GMAC, however, represents the loss of GM’s main profit-making source, indicating GM may be driven into a tight corner should the recovery of its North American operations be delayed, industry analysts say.

In addition, some analysts point to possible twists and turns for the deal. They were referring to a document on “key closing conditions” of the deal submitted to the U.S. Securities and Exchange Commission.

The conditions include a point that the consortium does not have to close the deal with GM if the automaker’s credit rating falls below CCC, a level considered to be speculative.

GMAC Chairman and Chief Executive Eric Feldstein confirmed the condition at a press conference.

At present, Standard & Poor’s and Fitch Ratings rate GM at B, two notches above the triple-C. Moody’s Investors Service rates the automaker at B3, a notch above. S&P said Monday its ratings on GM remain on CreditWatch with negative implications, adding it could lower the ratings “at any time because of evolving events at Delphi Corp.” GM faces a possible strike at Delphi, which has asked the court to void its labor contracts.

“We look forward to working with Cerberus to maintain and grow GMAC’s traditional strong performance and contribution to the GM family,” GM Chairman and Chief Executive Rick Wagoner said in a statement. “This agreement is another important milestone in the turnaround of General Motors.”

The GM board of directors approved the sale in a special meeting on Sunday which followed extensive consideration of this transaction and alternative strategies over the past several months, the company said in the release.

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