GM unloads most of its Suzuki stake, raises $2 bln
Monday March 6, 11:18 AM EST
By Chang-Ran Kim, Asia auto correspondent
TOKYO (Reuters) - Embattled U.S. auto giant General Motors Corp. (GM) said on Monday it would sell most of its stake in Suzuki Motor Corp. back to the Japanese carmaker, raising about $2 billion in much-needed cash to restore its tattered balance sheet.
The sale would leave GM with a 3 percent stake in Suzuki, down from 20.4 percent.
It ends months of speculation about a possible unraveling of their equity relationship after the world's biggest auto maker unloaded its entire 20 percent stake in Japan's Fuji Heavy Industries Ltd. last year, also to raise money.
The Detroit-based auto maker lost $8.6 billion in 2005 and is undergoing sweeping restructuring driven in part by new board member Jerry York, an aide to GM's largest individual shareholder, Kirk Kerkorian. York has called for more aggressive turnaround efforts, including the sale of various assets around the world.
"We see a $2 billion cash injection as meaningful, even in light of GM's robust corporate liquidity," JPMorgan analyst Himanshu Patel said in a note to clients. "This sale was largely unanticipated by the market."
GM shares rose as much as 3.6 percent, their biggest one-day gain since late January, and were up 61 cents at $19.82 in morning trading.
GM and Suzuki, which first formed a capital tie-up in 1981, said they would continue to work together at the operational level. Suzuki also owns an 11 percent equity stake in GM's South Korean unit, GM Daewoo Automotive & Technology Co.
"This transaction will allow us to preserve our business relationship, while further building up GM's already significant liquidity position during this critical phase of our turnaround," GM Chief Executive Rick Wagoner said in a statement.
GM said it expected a pre-tax gain of $550 million to $750 million from the sale.
GM's bonds also rose on hopes that a board meeting on Monday may lead to GM accepting an offer to buy the controlling stake in its finance unit, General Motors Acceptance Corp.
GM's 8.375 percent bond due 2033 rose to 71.5 cents on the dollar, from 69.94 cents on Friday, according to MarketAxess. GMAC's 8 percent bond due 2031 rose to 90.56 cents from 89.5 cents on Friday.
JP Morgan's Patel, however, said the Suzuki transaction could also indicate that the proposed sale of GMAC remains some way off.
Suzuki, a compact carmaker expecting its sixth straight year of record operating profits this year, said it would use cash at hand to buy back 92.36 million shares from GM for a maximum 229.98 billion yen ($1.97 billion).
The purchase, planned through an open-market buyback program before the Tokyo Stock March opens on Tuesday, would be made at Monday's closing share price of 2,490 yen.
"I think 3 percent is an appropriate (ownership) level," Suzuki CEO Osamu Suzuki told a news conference in Tokyo, adding he had always suggested a stake that was similar in percentage to what GM contributes to Suzuki's revenue, or around 3 percent.
SUZUKI SHARES RESILIENT
Shares in Suzuki dropped 4.4 percent early Monday after a Nihon Keizai Shimbun business daily reported at the weekend that GM would sell its entire 20.4 percent stake in it. But Suzuki ended down 0.4 percent, before the announcement, as investors overcame fears about the impact of such a sale.
Suzuki's planned share buyback would weigh on its cash reserves at a time it has budgeted outlays of 1 trillion yen ($8.6 billion) over the five years to 2010 to expand production capacity and develop new cars, but analysts said its fundamental strength remained firm.
Suzuki had 290 billion yen ($2.5 billion) in cash at the end of 2005 and has forecast an operating profit of 108 billion yen for the year to March 31.
"We're not too worried about the situation, as Suzuki's fundamentals and growth prospects are solid," said Christopher Richter, a Tokyo-based auto analyst at CLSA Asia-Pacific Markets.
"Any weakness on this news is a buying opportunity," he said, noting also that Suzuki's actual capital spending so far had fallen short of the automaker's projection.
Suzuki said the repurchase of its shares would not affect its profit outlook for the business year ending this month.
REPORT HITS ISUZU SHARES
The sale of the Suzuki stake also stoked market reaction to the possibility of a sale of GM's 7.9 percent stake in Isuzu Motors Ltd. , sending the Japanese truckmaker's shares down 2.84 percent to 377 yen.
But Troy Clarke, president of GM's Asia-Pacific operations, said the U.S. auto maker had no plans now to sell its stake in Isuzu, saying they have many "mutual and beneficial" projects.
"We will assess over time the role of equity that we have in Isuzu...but we have really nothing to say at this time," Clarke told reporters in a telephone conference in Tokyo.
Credit Suisse analyst Koji Endo, noting that GM's stake in Isuzu was modest at around 35 billion yen ($300 million), said he did not expect an immediate sale.
"GM has the strongest synergies with Isuzu among the three firms (Isuzu, Suzuki and Fuji Heavy)," he wrote in a report, adding that Isuzu is an important supplier, with GM purchasing nearly 200 billion yen worth of diesel engines and other parts from it annually.
(Additional reporting by Yuko Inoue, Sachi Izumi in Tokyo, Poornima Gupta in Detroit and Michele Gershberg in New York)
