GM’s Whitacre Seals Saab Deal, Advances Pledge of Loan Payback

GM’s Whitacre Seals Saab Deal, Advances Pledge of Loan Payback

Jan. 26 (Bloomberg) -- General Motors Co., by reaching a $500 million deal to sell its Saab division to Spyker Cars NV, has moved closer to fulfilling Chief Executive Officer Ed Whitacre’s pledge to pay back government loans by June.

Saab may become the first brand GM sells since emerging from a U.S.-backed bankruptcy on July 10. Arrangements to sell its Opel and Saturn units fell through as did earlier negotiations over the Swedish brand. A definitive agreement with Sichuan Tengzhong Heavy Industrial Machinery Co. to buy Hummer is pending regulatory approval.

“It’s a big accomplishment for them to be able to sell the brand,” said Rebecca Lindland, director of automotive research at IHS Global Insight in Lexington, Massachusetts. “It’s symbolic from a standpoint of getting something accomplished, because the Saturn sale fell through, Koenigsegg walked away from Saab and they had to wind down Pontiac.”

Whitacre, 68, had said since mid-December that GM was winding down Saab after earlier talks with Spyker, and before that Koenigsegg Group AB, fell through. Now the CEO known for building AT&T Inc. with acquisitions, has sold the Swedish car brand for at least $400 million in cash and preferred stock, aiding his pledge to repay U.S. and Canadian taxpayers by June.

The transaction is subject to a 400 million-euro ($563 million) European Investment Bank loan for Saab, GM and Spyker said today. Spyker will pay $74 million in cash and $326 million in preferred shares in the new company that would emerge from the deal, called Saab Spyker Automobiles, the companies said.

‘Additional Consideration’

GM will receive some “additional consideration” from the deal, John Smith, GM vice president of planning and alliances, said on a conference call, declining to elaborate. The Detroit-based automaker will also keep $100 million of Saab’s existing liquidity, said one person familiar with the matter. Deutsche Bank advised GM on the transaction, the company said in an e-mail.

The automaker’s effort to pay back $5.7 billion in remaining U.S. debt benefits more from avoiding wind-down expenses than from the cash proceeds, said a person familiar with the company’s aims, who asked not to be identified because the plans aren’t public.

“A significant part of the government’s return will come when GM becomes a public company again and will depend on whether investors think GM is a strong company with a good return ahead of it,” said Tom Wilkinson, a GM spokesman. “Finishing a successful sale of Saab is the most desirable way to wind down our relationship with Saab.”

Spreads Costs

“It helps spread the cost of components and vehicle development for GM,” said Joe Phillippi, president of AutoTrends Consulting in Short Hills, New Jersey. “And GM gets a nice chunk of cash for an asset that was not worth much at all.”

GM bought 50 percent of Saab in 1990 for about $700 million and purchased the rest of the Trollhaettan, Sweden-based company for $125 million and assumed debt in 2000 from Sweden’s Wallenberg family.

Whitacre, who said yesterday he would end a search for a new CEO and keep the job himself, leads a board that includes three directors from the private equity world. Daniel Akerson, David Bonderman and Stephen Girsky have helped Whitacre chart an activist course.

Akerson and Bonderman were chosen in part for their deal- making skills and hardball management approach, a former task force member said. Girsky was appointed to represent a union retiree health-care trust and is a paid adviser to Whitacre.

Opel Rejection

The three were instrumental in rejecting the sale of Opel to a group led by Magna International Inc., the Aurora, Ontario- based auto-parts maker, and Russian lender OAO Sberbank, people familiar with the deliberations said at the time.

Under Whitacre and his board, GM would sell Saab to Spyker on the condition that Russian businessman Vladimir Antonov, the chairman and biggest investor in the Zeewolde, Netherlands-based sports-car maker, exit the company, a person familiar with the talks said this month.

As part of today’s agreement, Tenaci Capital BV, a company owned by Spyker CEO Victor Muller, will take over Antonov’s 4.6 million Spyker shares when the deal is completed. Antonov, Martins Bondars and Naglis Stancikas will step down as supervisory board members, Spyker said.

Two Installments

Spyker will pay the cash in two installments, $50 million on the day the transaction is completed, expected by Feb. 15, and $24 million by July 15. As backup financing, Spyker received a 150 million-euro credit facility from GEM Global Yield Fund Ltd. that can be repaid in Spyker shares.

Swedish sports-car maker Koenigsegg, backed by Beijing Automotive Industry Holding Co., walked away from a deal to buy Saab in November. Beijing Auto later paid $200 million to buy some car technology from Saab to use in its own vehicles.

“It’s been a long march,” GM’s Smith told reporters on the conference call. “As part of finding a sustainable solution for Saab, we’re happy with the structure Victor Muller has put in place.”

GM will continue to provide powertrain components, finished vehicles in the form of 9-4x and some “transition-oriented engineering services” to Saab Spyker, Smith said.

GM also may generate some goodwill among fans of the brand and other European buyers, said Phillippi, the consultant.

“I would think there was a lot of pressure to get a deal done,” said Stephen Spivey, a senior auto analyst at Frost & Sullivan Inc. in San Antonio. “This has fallen apart once or twice already. I would be willing to bet that was a consideration in this deal, that they just can’t have another one fall apart.”

A deal to sell Hummer to Chengdu, China-based Sichuan Tengzhong is pending Chinese regulatory approval. Tengzhong CEO Yang Yi told China Daily in October that he hoped to win approval for the deal by early 2010. That deal is worth about $150 million, people familiar with the deal said in October, about 70 percent less than GM valued it in court.

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