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GM to Sell Part of Delphi to Public

Securities: Auto maker hopes to raise $1.5 billion by offering up to 19% of the unit.

November 17, 1998|From Bloomberg News

DETROIT — General Motors Corp. said that it aims to raise as much as $1.5 billion by selling to the public 15% to 19% of its Delphi Automotive Systems parts unit, according to the auto maker's filing with the Securities and Exchange Commission.

GM plans to sell part of the unit in a first-quarter initial public offering and spin off the rest later, giving Delphi freedom to build sales with GM rivals. Likewise, GM will gain more leverage to buy parts from companies other than Delphi, which has some factories with low productivity.

"Delphi will be able to get a greater share of other manufacturers' parts buys," said David Garrity, an analyst with GVA Research. "It also might be able to cut costs more rapidly if it can negotiate separate contracts with its unions."

Delphi already is the world's No. 1 auto parts maker, with annual sales of $31.4 billion. About 82% of its business is now with GM. Most existing GM contracts will remain after the sale.

The filing values Delphi at $8 billion to $10 billion, less than the $13 billion once estimated. Analysts said that's partly because of concern about Delphi's profitability and its stormy relationship with the United Auto Workers, analysts said.

UAW leaders are opposed to the Delphi separation, but acknowledge privately that they can't stop it.

Delphi makes hundreds of products, from steering systems to brakes and instruments. In the last two years, strikes at Delphi parts plants have twice brought GM's North American auto assembly to a virtual standstill.

GM also said it will take a fiscal fourth-quarter charge of $200 million to $250 million as part of Delphi's efforts to eliminate unneeded factories and workers. Some of the cuts have yet to be announced, a spokesman said.

GM shares rose $2.56 to close at $72.81 on the New York Stock Exchange.

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