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General Motors and the US government tonight struck a breakthrough deal with the crippled carmaker's bondholders after months of deadlock between the two sides.
The breakthrough marks a stunning U-turn from holders of the bonds, who only last night rejected GM's previous offer.
GM has now offered them 10% of the company plus an option to buy a further 15% in the future. In return, they have to accept the government-enforced restructuring programme. Yesterday's offer was just for the 10% chunk.
Bondholders have been playing hardball in their negotiations with the company over how much they can recoup for the $27.2 billion (£17 billion) of unsecured debt they hold in the business.
Striking this deal was critical for GM's future as the Obama administration has been using taxpayers' money to keep it afloat for the past six months, supplying it with emergency loans of $19.4 billion.
In return, the President has told GM that it must restructure the business and cut its debts with bondholders. He gave the company until 1 June to sort the crisis out.
The plan is now to put GM into a rapid bankruptcy for technical reasons before “new GM” emerges with the taxpayer owning 72.5% of the business.
A trust affiliated to the United Auto Workers union will own 17.5%.
The ad hoc committee of GM bondholders issued a statement declaring that it “supports the revised offer from GM and believes that when contrasted with the alternative — uncertain and costly bankruptcy court litigation — that it represents the best alternative for bondholders in the current difficult and dire situation”.
Today's deal is as important for Obama as it is for the bondholders. Given the huge political row over taxpayer-funded bailouts to banks, it was crucial that he was not seen to be giving too much of GM, effectively also bailed out by the taxpayer, away to Wall Street investors.
A salvation of the business was also politically crucial because of the tens of thousands of jobs which would be lost if GM went to the wall.
Bondholders had complained that the previous offer would have left them in a financially worse position than the UAW.
For European employees, however, the deal will not change GM's stance: it must sell its Opel and Vauxhall divisions in order to bring much-needed cash into the business and eliminate its exposure to their losses. This year, it anticipates the European operations will lose more than $3 billion alone.
Tonight, German political sources claimed that talks between GM and chancellor Angela Merkel's negotiating team broke down overnight because GM suddenly made a demand for 300 million of state aid.
German foreign minister Frank-Walter Steinmeier said he would be talking to US secretary of state Hilary Clinton this evening about the stalemate following 12 hours of talks.
Shares in GM rocketed after the announcement, jumping 17% and more. Trading was halted in advance of the announcement.
EC moves in on Vauxhall row
The European Commission today called emergency talks over attempts to rescue carmaker Vauxhall/Opel following the collapse of negotiations overnight and concerns about Germany's conduct in the talks.
Unions in the UK and governments across Europe with Opel plants have become increasingly concerned about perceived attempts by Germany to subsidise the buyers of US parent company General Motors' European arms in return for safeguarding German jobs. Such subsidies have to obtain cross-European approval.
The German government had been due this morning to name a preferred bidder but the all-night talks broke down after one of the three bidders pulled out.
Reader views (1)
Again the Germans are arriving late at the party. If Angela Merkel had signed up to the fiscal stimulus package at the G20, along with everyone else, instead of sitting on the sidelines, making snide remarks about the deficits in other countries, she might have joined other countries in the beginnings of a move out of recession instead of making Germany's position worse. The Germans go to the polls in September and she probably hoped to secure Germany's auto industry jobs in exchange for offering a temporary loan. Now she has fallen flat on her face and the EU are investigating Germany's attempt to secure an advantage for German workers at the expense of those in other EEC countries which is illegal under EEC trading laws. She may find herself in deep doo doo with the EC, less likely to be re-elected if thousands of jobs are lost due to her machinations, and certainly less than popular with her EU trading partners.
- Val Daniels, Mijas Costa, Spain, 28/05/2009 21:09
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