GM ponders future as deal fails

That would be in line with the wishes of the UK government. A spokesperson for UK Business Secretary Lord Mandelson said GM wanted to keep talking with all bidders.

• General Motors’ battle to avoid bankruptcy has suffered a major blow as bondholders have rejected a key part of the carmaker’s restructuring plan.
• The board will now meet to discuss its “next steps” after a large number of investors refused to exchange their debt for company shares.
• Meanwhile, the German government is due to meet to discuss bids for GM’s Europe arm, hoping to secure its future.
• Four bidders are in the running for its Opel and Vauxhall operations.
• German Chancellor Angela Merkel is set to meet GM representatives and US government officials at 2000 BST on Wednesday night.
• But German Economy Minister Karl-Theodor zu Guttenberg told Reuters news agency that two of the bidders – Italian carmaker Fiat and Canadian-Austrian car parts group Magna – would have to improve their offers significantly.
• Although the ultimate decision rests with GM in Detroit, Germany’s preference is crucial as the government is being asked to put up hefty loan guarantees for the winning bidder for GM Europe.
• Setback
• GM has been trying to do a deal with bondholders, under which they would trade in $27bn in debt for a 10% stake in the recapitalised company.
• The failure of the offer is a big setback for the US car giant, which is trying to avoid having to seek bankruptcy protection ahead of a US-government imposed 1 June deadline.
• GM spokesperson Julie Gibson said she was not aware of any plans to revisit the deal with bondholders.
• “I don’t think that is on the cards,” she said.
• The failure to do a deal “was a disappointment, but not a surprise,” she added.
• “There were a large number of vocal bondholders who were unhappy with the deal.”
• Indeed the majority of bondholders had been against the deal from the start, believing that the stake being offered was too small.
• The other key part of the restructuring, an agreement with unions, had been more successful. The powerful United Auto Workers union agreed to take a 20% stake in GM, down from the 39% in the original plan.
• Ms Gibson said it was too late in the day to use the equity freed up by this agreement to sweeten the bondholder deal.
• The GM board will meet “later this week” to discuss its next move.
• Bidding war
• In light of the failure of the deal with bondholders and the very real possibility that GM will seek bankruptcy protection next week, time is of the essence for a deal on GM Europe.
• Indeed, GM transferred control on Wednesday of its European factories and patents, excluding its Saab operations, to Opel in order to ease the takeover.
• The move also helps to protect Opel from any potential GM bankruptcy.
• “Legally it would ring-fence and isolate the assets from any potential developments,” said Karin Kirchner, spokesperson for GM Europe.
• The German government had been expected to name its preferred bidder after a series of meetings which are predicted to stretch late into the night on Wednesday.
• But a government spokesperson suggested it was “much more probable that talks will be continued with at least two investors after today’s meeting”.
• All had committed to maintain Vauxhall production in the UK, he added, where the carmaker employs 5000 people: 1200 at the Luton van plant, and 2000 at Ellesmere Port making Astras.
• Derek Simpson, general secretary of the Unite union in the UK, fears the German government will support a bid which offers no protection to British workers.
• Jobs at stake
• Opel has its headquarters in Germany, and 25,000 of the firm’s 50,000 workers are employed in the country.
• The four bidders for GM Europe are Italy’s Fiat, Canada’s Magna, Belgium’s RHJ and China’s Beijing Automotive Industry Corporation (BAIC).
• With an election looming, Berlin does not want to see too many job losses arising from the takeover.
• Magna says it will lay off 2,500 workers in Germany, while Fiat says it will cut 10,000 jobs across Europe, including 2,000 in Germany.
• BAIC, however, says it will not cut any jobs for at least two years. The German government is considering the bid from the Chinese carmaker, a spokesperson said, although it would not be present at Wednesday’s meetings.