DETROIT -- General Motors CEO Rick Wagoner said the $14 billion deal to sell 51 percent of General Motors Acceptance Corp. will help the automaker complete its turnaround plan in North America.
GM on Monday announced a deal to sell a controlling stake in its financing subsidiary to a consortium led by hedge fund Cerberus Capital Management LP.
The long-awaited sale will generate much-needed cash for GM, which reported a $10.6 billion loss in 2005. GM hopes the move will restore the financing unit's credit rating to investment-grade status, giving it better profits on loans.
"This will provide GMAC with a stronger financial position and help it sustain growth," Wagoner said during a morning press briefing at GM's headquarters here.
Wagoner said GMAC is not a "cash cow" but generates a lot of earnings for GM.
"The good news coming out of this transaction is we expect GMAC to resume its earnings growth, and we'll be 49 percent of that," Wagoner said. "I think it's a good deal."
So does Wall Street. GM shares rose almost 3 percent in premarket trading.
Wagoner said that in the long term, GMAC earnings will stabilize and its opportunity for financial growth is greater.
The Cerberus-led investor group includes the private equity unit of Citigroup and Japan's Aozora Bank Ltd, a portfolio company of Cerberus.
Wagoner said proceeds from the deal will support GM's North American turnaround plan. The deal also will help finance GM's growth, strengthen its 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 due by closing in the fourth quarter of this year.
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.
GMAC executives feel confident GMAC can get a stable investment credit rating once the deal is closed, GMAC CEO Eric Feldstein said at the press briefing. GM's Residential Capital Corp., its residential mortgage subsidiary, will stabilize above investment grade, he said.
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. GM will take a noncash pretax charge to earnings of $1.1 billion to $1.3 billion in the second quarter of 2006 associated with deal.
Fitch Ratings said on Monday it had put GMAC on watch for a likely upgrade.
GM and the consortium will invest $1.9 billion of cash in preferred equity in the new GMAC - $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 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. GMAC's staffing level is expected to remain constant.
Under the agreement, GM will have an option for 10 years to acquire GMAC's automotive finance operations, under conditions that include an investment-grade debt 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.
You may e-mail Jamie LaReau at [email protected]
Reuters contributed to this report.