Saab deal drives GM toward June loan deadline

09:41, January 28, 2010      

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General Motors Co, by reaching a $500 million deal to sell its Saab division to Spyker Cars NV, has moved closer to fulfilling Chief Executive Officer Ed Whitacre's pledge to pay back government loans by June.

Saab may become the first brand GM sells since emerging from a US-backed bankruptcy on July 10. Arrangements to sell its Opel and Saturn units fell through, as did earlier negotiations over the Swedish brand. A definitive agreement with Sichuan Tengzhong Heavy Industrial Machinery Co to buy Hummer is pending regulatory approval.

"It's a big accomplishment for them to be able to sell the brand," said Rebecca Lindland, director of automotive research at IHS Global Insight in Lexington, Massachusetts. "It's symbolic from a standpoint of getting something accomplished, because the Saturn sale fell through, Koenigsegg walked away from Saab and they had to wind down Pontiac."

Whitacre, 68, had said since mid-December that GM was winding down Saab after earlier talks with Spyker, and before that Koenigsegg Group AB, ended. Now the CEO, known for building AT&T Inc with acquisitions, has sold the Swedish car brand for more than $400 million in cash and preferred stock, aiding his pledge to repay US and Canadian taxpayers by June.

The transaction is subject to a 400 million-euro ($563 million) European Investment Bank loan for Saab, GM and Spyker. Spyker will pay $74 million in cash and $326 million in preferred shares in the new company that would emerge from the deal, called Saab Spyker Automobiles, the companies said.

GM will receive some "additional consideration" from the deal, John Smith, GM vice-president of planning and alliances, said on a conference call, declining to elaborate. The Detroit-based automaker will also keep $100 million of Saab's existing liquidity, said one person familiar with the matter. Deutsche Bank advised GM on the transaction, the company said in an e-mail.

The automaker's effort to pay back $5.7 billion in remaining US debt benefits more from avoiding wind-down expenses than from the cash proceeds, said a person familiar with the company's aims, who asked not to be identified because the plans aren't public.

"A significant part of the government's return will come when GM becomes a public company again and will depend on whether investors think GM is a strong company with a good return ahead of it," said Tom Wilkinson, a company spokesman.

"Finishing a successful sale of Saab is the most desirable way to wind down our relationship with Saab."

"It helps spread the cost of components and vehicle development for GM," said Joe Phillippi, president of AutoTrends Consulting in Short Hills, New Jersey. "And GM gets a nice chunk of cash for an asset that was not worth much at all."

GM bought 50 percent of Saab in 1990 for about $700 million and purchased the rest of the Trollhaettan, Sweden-based company for $125 million and assumed debt in 2000 from Sweden's Wallenberg family.

Source: China Daily
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