Deal for Delphi may face detour

Los Angeles Times

Platinum Equity, the Beverly Hills, Calif., investment firm, is hitting a few speed bumps in its quest to buy bankrupt auto-parts maker Delphi Corp.

The proposed $3.6 billion acquisition has the backing of Delphi’s former owner and largest customer, General Motors Corp., as well as the federal government. But opposition from some of Delphi’s creditors has raised the possibility that other bidders may emerge to challenge Platinum.

Whether these head winds combine to scuttle the deal won’t be known for at least a month. The judge in Delphi’s Chapter 11 bankruptcy case has scheduled a July 23 hearing, at which he could approve the company’s reorganization plan and approve a new owner.

Platinum’s deal to acquire the company was announced June 1, the same day GM filed for Chapter 11 bankruptcy protection.

Failing to snag Delphi would be an unwelcome setback for Platinum, which specializes in acquiring distressed companies. With big pieces of the U.S. economy in shambles, Platinum and its chief executive, 44-year-old billionaire Tom Gores, have had plenty of rubble to pick through lately.

Not including Delphi, Platinum has launched or completed deals to acquire half a dozen companies this year in industries including computers, commercial real estate services and garbage equipment.

The firm displayed a genuine taste for risk, however, when it waded into the troubled newspaper business with its March purchase of the San Diego Union-Tribune. Its proposal to buy Delphi seems equally bold, since the company has been operating under bankruptcy protection for almost four years and depends on an auto industry that is suffering its worst sales slump in decades.

“You tend to find us in markets that are facing the most amount of distress at any given time,” Platinum Principal Mark Barnhill said last week. “So what are we looking at now? We’re looking at a lot of newspapers, and we’re looking at a lot of automotive companies.”

Platinum’s spurt of deal-making comes as the private equity industry in general has fallen dramatically from its recent heights. Announced private equity deals dropped 60 percent last year to $211 billion compared with 2007, according to Bloomberg News data.

The poor environment didn’t prevent Platinum from raising $2.75 billion last September for a new leveraged buyout fund — $1.25 billion more than originally planned.

The firm’s strategy is to buy troubled companies and then bring operational expertise to areas including information technology, marketing and cash management in an effort to turn the business around before selling it. Founded by Gores in 1995, Platinum has completed more than 100 acquisitions with a total value of more than $27.5 billion.

Buying money-losing Delphi would add one of the world’s biggest vehicle-parts makers to Platinum’s budding auto portfolio. Earlier this year, the firm bought Alcoa Inc.’s wire harness and electrical distribution business.