GM reaches deal to sell finance arm

Monday, April 3rd 2006, 8:35 am

By: News On 6

DETROIT (AP) _ General Motors Corp., which is struggling to turn around its North American automaking operations, announced Monday that it has reached an agreement to sell a 51 percent stake in its finance arm.

The world's biggest automaker expects to receive about $14 billion as a result of the deal to sell control General Motors Acceptance Corp. over the next three years.

The stake is being purchased by a consortium of investors led by Cerberus Capital Management L.P., a private investment firm. The group also includes Citigroup Inc. and Aozora Bank Ltd.

GM will receive $7.4 billion from the 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 into limited liability companies.

In addition, GM will retain about $20 billion of GMAC automotive lease and retail assets and associated funding with an estimated net book value of $4 billion that will monetize over three years.

GM shares rose 64 cents, or 3 percent, to $21.91 in premarket trading.

GM Chairman and Chief Executive Rick Wagoner said the sale was an important part of efforts to restore GM to profitability.

Despite the boost GMAC is giving to the automaker's bottom line, GM has sought to sell the GMAC stake to raise cash and restore the division's debt ratings, which were downgraded along with GM's to junk status last year. A rating below investment grade makes it harder and more expensive to borrow money.

``This agreement is another important milestone in the turnaround of General Motors. It creates a stronger GMAC while preserving the mutually beneficial relationship between GM and GMAC,'' Wagoner said in a statement. ``At the same time, it provides significant liquidity to support our North American turnaround plan, finance future GM growth initiatives, strengthen our balance sheet and fund other corporate priorities.''

Under the deal, GMAC will continue to provide GM and its dealers with the same range of financial products and services. GM will have a 10-year option to acquire GMAC's automotive finance operations, provided GM has an investment-grade debt rating and meets certain other conditions.

GMAC Chairman and Chief Executive Eric Feldstein will continue to lead the company after the sale.

News of the deal came amid speculation that Wagoner's future with the company is in doubt. GM's board of directors, which approved the sale at a special meeting Sunday, used Monday's announcement to reaffirm its support for Wagoner.

``While there is still much work to be done, the GM board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability,'' presiding director George Fisher said in a statement.