Private Equity again: is Detroit selling up to pay out retirement funds?

With more news that the private equity …somethings (vultures? At the moment at least not wagons) are circling the auto industry, still.

A small group of private equity funds this week received information on Land Rover and Jaguar in preparation for a possible sale of Ford Motor’s two UK luxury brands, the Financial Times has learned.

First, I know what you’re thinking: doesn’t anything belong to itself anymore? No, not really.

Recipients of the data – which one person close to the process described as “more of a teaser, and less than an information memorandum” – are said to include Cerberus Capital Management, Ripplewood Holdings, One Equity Partners and at least one other fund with an interest in the automotive sector.

Just to keep the baedeker straight, Cerberus just bought out Daimler-Chrysler for USD7.4bn (they also just missed out with a Telco bid. Also, they’re fighting CAFE standards already. This also means they own Jeep – a competitor of Land Rover. Ripplewood Holdings also was interested in the Chrysler deal. It does my head in.

The two brands don’t seem valuable to Ford and – assuming this energy legislation does anything at all – will cost money. Ford might be getting out now to spare themselves the trouble of even caring about what to do with big engines?

GM selling Allison is more interesting anyway

This story was another of those starting points, though. Ford is appearing to take a loss on Land Rover and Jaguar to shed them. I read the other day that GM is going ahead with its sale of Allison Transmission. Two other Equity groups entirely – Onex Group and the Carlyle Group are paying GM USD5.6bn for the unit. It’s GM’s most profitable (or among them) division – as was their financial GMAC, also sold a while back. GM did this for two explicit reasons,

  1. Focussing instead on core business (about which there is some disagreement. When you do what GM does, having a profitable division that does what Allison inside your tent is the preferred circumstance), and more importantly
  2. Raising cash for dealing with unions, later this summer.

The markets loved the move:

GM stocks

The union thing? It looks for all the world like GM is going along with the plan to set up an independent trust to deal with retirement and/or health care costs once and for all, subsequently walking away from the liability. Which we can all agree is probably wise idea. The two other companies mentioned in the previous speculation were Ford and Chrysler – two companies also selling up divisions.


What did, finally, strike me as odd/cool about the GM story was the plan by the Carlyle and Onex groups’ partnership to take Allison public. That is not the usual order of things. But Allison makes money, and clearly they figure they have a better bet selling the company to the public than jimmy-ing its costs around a bit and selling it to another private group. What this means for, say, the workers and their benefits, remains to be seen. It seems to me positive, though – treating the division like a company, rather than an asset, bodes well for the workers, while selling it to a broader range than investors rather than another leveraged buyout consortium is probably better all around. Perhaps Onex and Carlyle have figured out that finding another such group several months from now might be nigh-impossible?


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