This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

GM Releases Its Crown Jewel

Updated from 8:40 a.m. EDT

General Motors (GM - Get Report) announced a long-awaited deal Monday to selloff a majority stake in GMAC, the finance subsidiary that has recently been the automaker's only profitable business, in return for $14 billion in cash over the next three years.

Despite its profitability, GMAC's credit ratings have suffered over the last year at the hands of its parent's dismal financial condition. Its sale has the potential to restore investment-grade ratings for the business and prevent spiraling borrowing costs from wiping out its profitability. But initial commentary circulated through the credit market suggests the buyer, a private equity consortium led by Cerberus Capital Management, may not be able to immediately improve GMAC's ratings.

For its part, GM unloaded its crown jewel out of a pressing need for cash as it juggles dwindling market share, a burgeoning cost structure, dicey consumer spending and heated bankruptcy proceedings at Delphi (DPHIQ), its largest auto parts supplier and former subsidiary. Even with its current cash cushion of around $30.1 billion, GM's willingness to sell the finance business reflects, in part, the potential for its reserves to be eaten up quickly should events take a turn for the worse.

"GM needs to liquefy its balance sheet in order to have the cash on hand to fund its pension problems, its facility close-down problems, its Delphi problems and all its other problems," says Paul H. Ross, managing director with ING Investment Management.

GM agreed to sell a 51% stake in GMAC in the deal, which is expected to close in the fourth quarter. GM will receive $7.4 billion in cash at that time, along with an estimated $2.7 billion cash distribution from GMAC. It will receive an additional $4 billion over the next three years related to the monetization of some assets over time and other adjustments. The company also will record a pretax charge related to the sale of $1.1 billion to $1.3 billion in the second quarter.

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
C $53.67 -0.92%
GM $35.20 -0.58%
AAPL $126.38 -1.80%
FB $77.50 -1.70%
GOOG $533.35 -1.40%

Markets

DOW 17,981.12 -89.28 -0.49%
S&P 500 2,097.46 -17.03 -0.81%
NASDAQ 4,952.7340 -64.1950 -1.28%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs