GM plans limited stock issue for Delphi SEC filing indicates eventual spinoff

Auto industry

November 17, 1998|By BLOOMBERG NEWS

DETROIT -- General Motors Corp. aims to raise as much as $1.5 billion by selling to the public 15 percent to 19 percent of its Delphi Automotive Systems parts unit, which wants independence to boost business with customers outside GM.

The world's biggest automaker filed documents with the Securities and Exchange Commission yesterday that detail Delphi's strategy, balance sheet and future relationship with GM. Delphi, with sales of $31.4 billion, already is the world's No. 1 maker of automobile parts.

GM plans to sell part of the unit in a first-quarter initial public offering and spin off the rest later, giving Delphi freedom to build sales with GM rivals. GM would gain more leverage to buy parts from companies other than Delphi, which has some factories where productivity is low.

"Delphi will be able to get a greater share of other manufacturers' parts buys," said David Garrity, an analyst with GVA Research LLC. "It also might be able to cut costs more rapidly if it can negotiate separate contracts with its unions."

The filing values Delphi at $8 billion to $10 billion, less than the $13 billion once estimated. Analysts said that's partly because of concern about Delphi's profitability and its stormy relationship with the United Auto Workers.

"They're pricing it low to make it attractive," Garrity said. "Investors are being fully compensated for the UAW risk and for the fact that Delphi hasn't yet hit some of GM's profit targets."

UAW leaders oppose the Delphi separation, but acknowledge privately that they can't stop it.

Delphi briefed the union about the separation but hasn't yet had formal bargaining about the impact. The UAW represents 46,000 Delphi workers, about a quarter of the 204,000 total.

Delphi makes hundreds of products, from steering systems to brakes and instruments. In the last two years, strikes at Delphi parts plants twice have brought GM's North American auto assembly to a virtual standstill. About 82 percent of its business is with GM.

GM plans to proceed with Delphi's IPO in next year's first quarter, even though there has been lower demand for new issues in recent months because of slumping stock markets. GM took Conoco Inc.'s Oct. 21 stock sale, which at $4.4 billion was the largest-ever U.S. IPO, as a sign that conditions are improving.

If the sale succeeds, sometime before the end of next year GM would distribute the rest of Delphi to GM shareholders -- either in exchange for GM shares, in a free distribution or possibly in a combination.

GM didn't indicate yesterday which approach it favors. Spokesman Stephen Gaut said the decision won't be made until next year.

The automaker has said that if the stock sale falls through, it might distribute equity in Delphi directly to existing GM shareholders.

GM will take a fourth-quarter charge of $200 million to $250 million as part of Delphi's efforts to eliminate unneeded factories and workers, the filing said.

Some of the plant closings and voluntary retirement plans have yet to be announced, a spokesman said.

GM's share price rose $2.5626 yesterday to close at $72.8125.

If Delphi were a stand-alone company, it would have ranked 25th on the last Fortune 500 list of largest companies, just behind Merrill Lynch & Co. and ahead of J. C. Penney Co.

Pub Date: 11/17/98

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