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GM to sell 51 pct of GMAC

April 3, 2006

By Mark McSherry

NEW YORK (Reuters) – General Motors Corp. on Monday said it
agreed to sell a 51 percent stake in its financing arm, General
Motors Acceptance Corp., to a consortium led by hedge fund
Cerberus Capital Management LP for a total of $14 billion.

The long-awaited sale will generate much-needed cash for
the world’s largest automaker, which reported a $10.5 billion
loss in 2005. GM hopes the move may also help to restore the
financing unit’s credit rating to investment-grade status.

GM shares rose almost 3 percent in premarket trading.

The Cerberus-led investor group includes the private equity
unit of Citigroup and Japan’s Aozora Bank Ltd, a portfolio
company of Cerberus.

GM Chairman and Chief Executive Officer Rick Wagoner said
in a statement the deal “provides significant liquidity to
support our North American turnaround plan, finance future GM
growth initiatives, strengthen our balance sheet and fund other
corporate priorities.”

GM said it expects to receive about $14 billion in cash
from the transaction over three years, including distributions
from GMAC, with an estimated $10 billion by closing.

The $14 billion includes $7.4 billion from the Cerberus-led
consortium at closing and an estimated $2.7 billion cash
distribution from GMAC related to the conversion of most of
GMAC and its U.S. subsidiaries to limited liability companies.

In addition, GM said it will retain GMAC’s automotive lease
and retail assets and associated funding with an estimated net
book value of $4 billion that will monetize over three years.

Fitch Ratings said on Monday it has put GMAC on watch for a
likely upgrade.

$25 BILLION FUNDING

GM will take a non-cash pre-tax charge to earnings of $1.1
billion to $1.3 billion in the second quarter of 2006
associated with deal.

GM and the consortium will invest $1.9 billion of cash in
new GMAC preferred equity — $1.4 billion to be issued to GM
and $500 million to the Cerberus group.

GM also said Citigroup will arrange two syndicated
asset-based funding facilities that total $25 billion which
will support GMAC’s ongoing business.

Citigroup has committed $12.5 billion to these two
facilities. The funding facilities are in addition to
Citigroup’s initial equity investment in GMAC.

The GMAC board of directors will have 13 members — six
appointed by the consortium, four appointed by GM, and three
independent members. GMAC will continue to be managed by its
existing executive management.

Under the agreement, GM will have an option for 10 years to
acquire GMAC’s global automotive finance operations, under
certain conditions, including an investment-grade rating at

GM.

Shares of GM rose to $21.85 on the Inet electronic
brokerage system from a close of $21.27 on the New York Stock
Exchange on Friday.

GMAC’s 8 percent bonds due in 2031 rose to 96.25 cents on
the dollar, up from 94.75 cents on Friday, according to
MarketAxess.

(additional reporting by Michael Flaherty)


Source: reuters



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