GM unloads transmission unit for $5.6B
Friday, June 29, 2007
GM unloads transmission unit for $5.6B
Sharon Terlep / The Detroit News
Private investors snapped up another piece of the U.S. auto industry Thursday, with General Motor Corp.'s decision to sell its Allison Transmission unit to a pair of buyout firms for $5.6 billion.
GM, which has lost more than $12 billion in two years, will use the money to cover turnaround-related expenses such as plant closings, worker buyouts and the development of new models.
The automaker agreed to sell Allison's commercial and military business, based in Indianapolis, to investment firms The Carlyle Group and Onex Corp. A production facility in Baltimore that builds conventional and hybrid transmissions for pickup trucks and sport utility vehicles will remain with GM.
GM's move is a key part of the automaker's strategy to build up reserves by shedding units not related to the core business of building passenger cars and trucks. Not counting the Alison deal, the automaker has sold more than $16 billion in assets in the past two years, including last year's $14 billion sale of the GMAC financial services company to private equity firm Cerberus Capital Management LP. The automaker also is considering selling a Flint-based unit that makes medium-duty trucks.
Wall Street on Thursday responded positively to news of the Allison sale, sending GM stock up 2 percent to $38.15 -- its highest level since January 2005.
"This is another important step to strengthen our liquidity and provide resources to support our heavy investments in new products and technology," GM Chairman and Chief Executive Officer Rick Wagoner said in a statement.
Private equity's clout in the struggling American auto industry is growing as cash-rich companies tackle buyouts that would have been unheard of even a few years ago, most notably Cerberus' decision to buy the Auburn Hills-based Chrysler Group from parent DaimlerChrysler AG.
"It's a sellers' market for business like that," auto analyst David Healy at Burnham Securities said. "We're probably seeing kind of a peak in that kind of activity. Maybe GM sees that, too."
Healy estimates that GM's liquidity position will be better this year than last, and said the Allison deal made sense because the unit wasn't a major source of income for the automaker.
A number of analysts projected the unit was worth significantly less than the $5.6 billion GM commanded.
JP Morgan analyst Himanshu Patel said in a note that GM could use proceeds from the sale to pay for a trust fund that would cover workers' health care, similar to a deal between Goodyear Tire & Rubber Co. and the United Steelworkers union.
Allison, which employs about 3,400 people, had 2006 sales of $2.2 billion. GM made about $340 million off the company last year. In the first quarter of this year, GM made a razor-thin $62 million profit globally, but lost $46 million on its North American operations.
The Allison deal is expected to close as early as the third quarter of 2007, if approved by the United Auto Workers union and federal regulators.
The Carlyle Group is a Washington, D.C.-based private equity firm. Onex Corp. is a Toronto-based investment conglomerate.
You can reach Sharon Terlep at (313)223-4686 or sterlep@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
GM unloads transmission unit for $5.6B
Sharon Terlep / The Detroit News
Private investors snapped up another piece of the U.S. auto industry Thursday, with General Motor Corp.'s decision to sell its Allison Transmission unit to a pair of buyout firms for $5.6 billion.
GM, which has lost more than $12 billion in two years, will use the money to cover turnaround-related expenses such as plant closings, worker buyouts and the development of new models.
The automaker agreed to sell Allison's commercial and military business, based in Indianapolis, to investment firms The Carlyle Group and Onex Corp. A production facility in Baltimore that builds conventional and hybrid transmissions for pickup trucks and sport utility vehicles will remain with GM.
GM's move is a key part of the automaker's strategy to build up reserves by shedding units not related to the core business of building passenger cars and trucks. Not counting the Alison deal, the automaker has sold more than $16 billion in assets in the past two years, including last year's $14 billion sale of the GMAC financial services company to private equity firm Cerberus Capital Management LP. The automaker also is considering selling a Flint-based unit that makes medium-duty trucks.
Wall Street on Thursday responded positively to news of the Allison sale, sending GM stock up 2 percent to $38.15 -- its highest level since January 2005.
"This is another important step to strengthen our liquidity and provide resources to support our heavy investments in new products and technology," GM Chairman and Chief Executive Officer Rick Wagoner said in a statement.
Private equity's clout in the struggling American auto industry is growing as cash-rich companies tackle buyouts that would have been unheard of even a few years ago, most notably Cerberus' decision to buy the Auburn Hills-based Chrysler Group from parent DaimlerChrysler AG.
"It's a sellers' market for business like that," auto analyst David Healy at Burnham Securities said. "We're probably seeing kind of a peak in that kind of activity. Maybe GM sees that, too."
Healy estimates that GM's liquidity position will be better this year than last, and said the Allison deal made sense because the unit wasn't a major source of income for the automaker.
A number of analysts projected the unit was worth significantly less than the $5.6 billion GM commanded.
JP Morgan analyst Himanshu Patel said in a note that GM could use proceeds from the sale to pay for a trust fund that would cover workers' health care, similar to a deal between Goodyear Tire & Rubber Co. and the United Steelworkers union.
Allison, which employs about 3,400 people, had 2006 sales of $2.2 billion. GM made about $340 million off the company last year. In the first quarter of this year, GM made a razor-thin $62 million profit globally, but lost $46 million on its North American operations.
The Allison deal is expected to close as early as the third quarter of 2007, if approved by the United Auto Workers union and federal regulators.
The Carlyle Group is a Washington, D.C.-based private equity firm. Onex Corp. is a Toronto-based investment conglomerate.
You can reach Sharon Terlep at (313)223-4686 or sterlep@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
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