GM Bankruptcy Filing Moves Closer Amid Sale Plans, Union Deals
May 22 2009 - 2:15PM
Dow Jones News
General Motors Corp. (GM) is "very likely" to file for
bankruptcy, a Canadian union chief said Friday, amid a flurry of
activity ahead of a possible pre-packaged move into court.
A so-called 363 filing splitting the company into "good" and
"bad" parts and controlled by the U.S. government could come after
a crucial U.S. union vote on Thursday, according to people close to
the situation.
A GM bankruptcy is expected to be much more complex than that of
Chrysler LLC, which filed April 30, because of its sheer scale, the
size of its international operations and larger impact on the
supplier industry.
While unions in the U.S. and Canada have tentative deals with
the company, bondholders continue to hold out for better terms
while the German government said the proposed sale of a majority
stake in its European business needs to be resolved next week.
A group of U.S. lawmakers is also calling for fresh talks with
GM bondholders, whose resistance to the proposed terms is viewed as
the main barrier to a quick exit by the company from
bankruptcy.
Ken Lewenza, president of the Canadian Auto Workers union, said
in a media briefing Friday that GM is "very likely" to file for
protection.
The CAW's pact follows the tentative deal GM reached with its
U.S. union this week to convert health-care obligations into equity
in a reorganized company, alongside wage and benefit
concessions.
GM has said it is unlikely to secure final agreement from U.S.
employees before the May 26 expiration of an exchange offer to
bondholders that is widely expected to be rejected, pushing the
company closer to a filing.
Europe In Focus
German politicians also signaled Friday that the company and the
U.S. auto task force need to make a decision next week on three
bids for the company's European operations.
GM has worked to ring-fence its international operations ahead
of a U.S. filing, which is widely expected to follow the example of
Chrysler LLC and take place in New York's southern district.
The auto task force requires that all of GM's regional
operations be viable in order for it to approve a new restructuring
plan and grant as much as $30 billion in fresh loans to keep it
operating.
GM has received three bids for a majority stake in its European
business, tied to German government funding, including one from
prospective Chrysler LLC partner Fiat SpA. (FI-MI).
Fiat's cash-free offer would combine GM's Opel and Vauxhall
brands with its own and Chrysler, cutting around 10,000 GM
jobs.
The Italian company has signaled it may revive interest shown in
GM's Latin American business at a later date.
Canadian parts maker Magna International Inc. (MGA) is seen as a
frontrunner because it would offer some cash and provide more job
guarantees, though neither GM nor German authorities have expressed
a preference.
The company would reportedly pay EUR700 million for a 35% stake,
in partnership with Russia's Sberbank (SBER.RS), and OAO GAZ Group
(GAZA.RS).
The private-equity bid from RHJ International (RHJI.BT) may
provide Opel with some cash upfront.
German Economy Minister Karl-Theodor zu Guttenberg said Friday
that all options are still open for GM's Opel brand, including
possible insolvency.
"We must have made a principle decision next week because in the
U.S. they will make a decision regarding starting insolvency
procedures [for GM Corp.]," he told Dow Jones Newswires.
Shares in GM, which are expected to effectively lose all value
in a filing, briefly moved above $2 for the first time in a month
having gained almost a third Thursday following the U.S. union
deal. The stock later slumped and was recently trading down 16.1%
at $1.60.
-By Doug Cameron, 312-750-4135; doug.cameron@dowjones.com
(Jennifer Clark, Christoph Rauwald, Sharon Terlep and Andrea
Thomas contributed to this article.)