GM targets $1.5 billion in Delphi stock offering

Journal Record, The (Oklahoma City), Nov 17, 1998

DETROIT (Bloomberg) -- General Motors hopes to raise as much as $1.5 billion by selling 15 percent to 19 percent of its Delphi Automotive Systems parts unit in an initial stock sale designed to boost business with customers outside GM.

The world's biggest automaker disclosed the targets in a filing with the Securities and Exchange Commission. The documents provide the first detailed look at Delphi's strategy, balance sheet and future relationship with GM, all key in determining investor enthusiasm for the sale.

The filing suggests GM values Delphi, already the world's largest parts-maker with annual revenue of $31.4 billion, at $8 billion to $10 billion. When GM announced the separation last summer, some analysts valued Delphi as high as $13 billion. "That's a little light, compared to what people (on Wall Street) were expecting," said Gary Lapidus, an analyst with Sanford C. Berstein & Co. GM still plans to proceed with the offering in the first quarter of 1999, despite lower demand for IPOs in recent months caused by slumping stock markets. GM took Conoco's Oct. 21 stock sale, which at $4.4 billion was the largest-ever U.S. IPO, as a sign that conditions are improving. If the sale succeeds, sometime before the end of next year GM and Delphi would distribute the rest of the company to GM shareholders, either in exchange for GM shares or in a free distribution, or possibly a combination. GM didn't indicate Monday which approach it favors. Spokesman Stephen Gaut said the decision won't be made until next year. The automaker has said that if the stock sale falls through, it might distribute equity in Delphi directly to existing GM shareholders. Rival Ford is also considering a spinoff of its auto-parts unit, Visteon, No.2 in the world, though Ford now says it will wait until after 1999 because of market volatility. If Delphi were a standalone company, it would have ranked rank 25th on the last Fortune 500 list of largest companies, just behind Merrill Lynch and ahead of J.C. Penney. It's already the world's largest auto-parts maker, with 204,000 employees and 200 plants. It supplies steering systems, engine controls, electronic sensors, braking systems and other parts and systems to carmakers. Its biggest customer is GM. Delphi said it expects its non-GM business, now 18.3 percent of total annual sales, to increase after the separation. Most existing GM contracts will remain in effect. Delphi also announced an agreement giving it "the right to provide on competitive terms the first replacement cycle" of products it's now supplying to GM. That will allow it to keep a "substantial" amount of GM business, Delphi said. Delphi said it will concentrate on selling automotive systems rather than bundles of individual parts. In particular, it will focus on power and propulsion, ride and handling, passenger environment and control and communications. Delphi hasn't yet met with the United Auto Workers union to discuss the impact of its separation from GM. The UAW represents 49,813 Delphi workers, or about one-quarter of the total. The company said it believes the separation will help boost competitiveness by fostering factory work rules more consistent with those at outside competitors. UAW leaders are opposed to the Delphi separation, but acknowledge privately that they can't stop it.