GM’s sale of GMAC stake likely to yield $15 billion U.S.

May use cash for job cuts, Delphi costs Wins union approval of benefit cuts

General Motors Corp., after losing $ 6.3 billion ( U. S.) building vehicles this year, may get up to $ 15 billion by selling a stake in its profitable finance unit. The auto maker may use proceeds from the sale to help cover the cost of eliminating 25,000 GM jobs and retirement expenses inherited from the insolvency of Delphi Corp., GM’s former unit and its largest supplier, said UBS AG analyst Rob Hinchliffe. GM chief executive Rick Wagoner said on Monday the company must sell a stake in the unit, General Motors Acceptance Corp., to regain an investmentgrade rating for loan debt. David Healy, an analyst for Burnham Securities Inc., said he expects a stake sale could gain GM as much as $15 billion, based on the assumption finance companies are worth 10 to 11 times their earnings. GM, the world’s largest auto maker, reported a fourth straight quarterly loss on Monday, extending its longest unprofitable streak in 13 years. Wagoner, 52, is being forced to carve off a majority stake in GMAC, likely stripping more than $ 15 billion in annual revenue, after rising losses and slumping U. S. sales prompted ratings companies to cut GM debt to junk status in May. The Detroit- based auto maker’s market value is $ 17 billion. The auto maker hasn’t said whether it plans to sell its homemortgage or insurance operations, which could net $ 14.2 billion, Merrill Lynch & Co. said in a March report. A sale of a 51 per cent stake in GMAC would probably bring in about $ 11.7 billion in cash, New York- based J. P. Morgan analyst Himanshu Patel reported yesterday. The estimate assumes GMAC is worth about $23 billion and gives it a price- to- earnings ratio of about 11.5 time earnings, he wrote. The proceeds to GM would be offset by about $ 1 billion in lost earnings annually from the portion of the finance unit that is sold, Patel said. GM shareholders would still get a net gain of about $ 5.42 per share, he wrote. Based on 566 million GM shares outstanding, that’s $3 billion.

Patel said he expects the proceeds from a GMAC stake sale will pay for costs associated with closing plants and eliminating jobs and will not be paid out in a dividend to shareholders. Wagoner also said yesterday that weekend bargaining sessions netted a tentative agreement with the United Auto Workers union that may cut its $77 billion long-term retiree health- care liabilities by $ 15 billion and reduce health-care spending by $ 1 billion a year. He reiterated GM plans to cut 25,000 jobs by 2008 and close factories to increase capacity utilization. The UAW began legal proceedings in Detroit yesterday aimed at winning court approval of the agreement. The court process is expected to take several months. GM has said the deal cutting its health- care expenses, which was announced after months of negotiations, is a crucial part of the company’s efforts to return to profitability.