Group to invest billions in Delphi
A local union leader hopes the financing will lead to contract bargaining.
STAFF/WIRE REPORT
DETROIT -- Auto parts supplier Delphi Corp. said Monday it has accepted a 3.4 billion investment from a group of private equity companies to support its emergence from bankruptcy protection.
The willingness of sophisticated investors that already have a stake in Delphi to put more money into it speaks well for the supplier's future, said Jim McTevia, a Michigan-based corporate turnaround specialist.
"It looks like Delphi is going to survive," McTevia said. "It's a vote of confidence in the company and the company's ability to get out of Chapter 11 and become a bigger player in the global market."
Under the deal, affiliates of Appaloosa Management LP, Cerberus Capital Management LP and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & amp; Co. and UBS Securities LLC, would invest in the company. The investment group will invest a minimum of 1.4 billion and a maximum of 3.4 billion in the struggling company in exchange for common and preferred stock that will be issued in the first half of next year.
The money will be used to fully fund Delphi's pension plan, which at the end of 2005 was underfunded by 4.1 billion, the company said.
Reactions
The investments were welcomed by Mike O'Donnell, who took over last week as a top union official at Delphi Packard Electric, a Warren-based division of Packard.
"I think it's a positive sign, but it's only part of a solution," said O'Donnell, shop chairman for Local 717 of the International Union of Electrical Workers.
With financing in place, he's hoping union leaders will be called to Detroit shortly after Jan. 1 to try to hammer out new labor contracts that the company wants. Delphi has motions pending in bankruptcy court to void its current contracts.
Jim Clark, president of the Washington, D.C.-based union, said the union will do all it can to reach an agreement by a target date of Jan. 31.
Delphi and General Motors Corp. also have been bargaining over the automaker's responsibility for the company that it created in a spinoff. GM issued a statement Monday that said it is encouraged by recent progress but "there are still a number of matters to be resolved and a lot more work is yet to be completed."
GM has estimated that it is liable for 6 billion in Delphi employee benefit costs.
Delphi also announced that its board named President Rodney O'Neal to replace Chairman Robert S. "Steve" Miller as chief executive, effective Jan. 1. Miller will remain chairman, and O'Neal will remain president.
Troy-based Delphi, the nation's largest auto parts supplier, said the finance agreement was part of a plan to emerge from bankruptcy protection by the second quarter. A reorganization framework agreement, signed by Delphi, the investors and former parent General Motors Corp., was included in the deal.
Delphi plans to dissolve its current 560 million shares and issue 135.3 million shares of new common stock. Current Delphi shareholders would divide up 3 million shares of the new stock, plus they would get rights to buy more new shares at a discount.
Of the new investors, Cerberus and Appaloosa are the largest. Appaloosa already holds 9.3 percent of Delphi's current stock, according to LionShares.com.
The new investors would buy 30 percent to 72 percent of Delphi's new stock, depending on how many current stockholders decide to exercise their option to buy the new stock, Delphi said.
Refinancing deal
Separately, Delphi accepted a proposal from JPMorgan Chase Bank and a group of lenders to refinance the company's existing 2 billion debtor in possession credit line and about 2.5 billion in loans.
"Today's agreements represent significant milestones in Delphi's reorganization and another major step towards emergence from our Chapter 11 reorganization in the U.S.," Miller said in a statement.
The parts supplier plans to close or sell 21 of its 29 U.S. manufacturing sites and focus on operating eight U.S. sites, including Packard. Packard produces wiring harnesses and other electronic components.