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Delphi lenders prevail in auction

Platinum Equity fails to acquire the bankrupt auto parts maker.

July 28, 2009|Martin Zimmerman

Beverly Hills investment firm Platinum Equity has failed in its effort to acquire Delphi Corp. after the bankrupt auto parts maker opted late Monday to accept a competing bid from its creditors.

Delphi, which has been operating under bankruptcy protection since 2005, said Monday night that its board of directors had agreed to accept a "pure credit" bid from its bankruptcy lenders. The bid was approved "following consultation with Delphi's official committee of unsecured creditors and its largest U.S.-based union," the company said in a statement.

In their credit bid, creditors agreed to forgive $3.5 billion in loans to the Troy, Mich., company in exchange for equity. Delphi said the bid was similar to the offer originally submitted by Platinum Equity.

Delphi said the creditors' offer was supported by its former parent, General Motors Co. To win the bankruptcy auction, the offer still must be approved by the Bankruptcy Court.

Much of Platinum Equity's proposed $3.6-billion acquisition of Delphi would have been financed by GM, which would have acquired several of Delphi's North American plants and its global steering business.

Platinum also said it would put up $250 million in cash when the deal closed and put another $250 million in a fund that Delphi could have drawn on as needed.

In a recent court filing, the lenders said they had put together a management team to run Delphi and were prepared to implement a business plan. The lenders also warned that they would pursue a foreclosure sale of Delphi's assets if their credit bid was rejected.

Objections to Delphi's decision to accept the creditors' bid must be filed by this afternoon, the company said.

Several weeks ago, it appeared that Platinum Equity, whose bid had the backing of GM and the federal government's auto task force, was a shoo-in to win Delphi. In addition to its financing plan, the investment firm said it had been studying Delphi's operations for three years and had a management team ready to be put in place at the company.

But the creditors complained bitterly during a court hearing last month that Platinum Equity was getting a "sweetheart" deal that would enrich it while paying Delphi's bankruptcy lenders no more than 20 cents on the dollar.

In addition, a majority of Delphi's creditors voted against the Platinum deal, according to court documents filed last week.

U.S. Bankruptcy Judge Robert Drain, who is overseeing Delphi's Chapter 11 bankruptcy, ordered that a formal auction be held so other offers could be considered.

Platinum may still play a role in Delphi's future. The company said it was in talks with Delphi's lenders concerning the parts maker's restructuring.

"We look forward to working on the next phase of this process with Delphi, its lenders and General Motors -- all of whom have acknowledged the value of Platinum Equity's operating expertise," Platinum said in a statement.

Depending on the outcome of the talks, Platinum may be involved in running Delphi, or it could take an investment stake in the company, or both, the firm said.

The outcome marks a rare setback for Platinum Equity, which is headed by 44-year-old Tom Gores and specializes in acquiring distressed companies.

Platinum, which this year acquired Alcoa Inc.'s wire harness and electrical distribution business, had planned to add Delphi to what it hoped would be a group of auto suppliers.


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