General Motors has yet to decide whether it will sell its stake in American Axle & Manufacturing Inc. to New York investors.
The Blackstone Group, the New York merchant banking firm negotiating to acquire American Axle in a nearly $1 billion deal, wants full ownership of American Axle, according to Crain's Detroit Business, a sister publication to Automotive News.
GM retained a significant minority stake in the new company, which comprises the former Saginaw Steering Gear Division spun off three years ago.
The Blackstone Group also wants to inherit the beneficial contractual arrangements GM gave American Axle's owners in 1994, according to two investment bankers. One of those provisions gives American Axle the right to underbid competitors after all bids are in.
If Blackstone's negotiations falter, at least one other investment group is preparing its own buyout offer, according to a source associated with the group. The group had held earlier discussions with the organization headed by Ray Park, the Cleveland industrialist who has a controlling interest in American Axle. GM spokespersons declined to comment on the negotiations.
GM HOLDS KEY CARDS
GM could block Blackstone's planned buyout of American Axle but is not expected to do so, according a source close to the buyout.
A GM refusal to sell its stake in the supplier could interfere with Blackstone's plans to increase its business with other customers, investment bankers said. GM supplied more than 90 percent of American Axle's $2.2 billion in revenue last year.
'It is important that the Fords and Chryslers believe American Axle is independent,' said a banker familiar with the deal.
GM shares ownership in American Axle with Detroit businessman Morton Harris, company president and CEO Richard E. Dauch and Park. The three paid 'considerably less than $40 million' and GM retained a minority stake in the new company.
Park, the majority shareholder, and Dauch did not return telephone calls.
This month, Mike Losh, chief financial officer, met with the three American Axle owners and two Blackstone partners, who want GM's agreement with American Axle to continue under their ownership.
GM gave the supplier guaranteed contracts beyond 2000 to ensure a smooth transition.
One of the most favorable included an agreement under which GM wired payment to American Axle the day GM received axle shipments during the first year. GM customarily pays suppliers within 60 days.
That enabled American Axle to cover much of its labor and material costs with cash flow. That reduces dependence on revolving bank credit.
American Axle also enjoys a rare 'last look' prerogative on work GM puts out for bid, according to an investment banker. So if an American Axle competitor has the low bid, American Axle can re-evaluate its offer.
Those terms help offset the high fixed costs American Axle assumed when it acquired GM's Saginaw Steering Gear plants and more than 6,500 of its employees.