Delphi Corp. said it had signed an agreement for an investment of up to $3.4 billion by a group of investor funds that will take a controlling stake in the auto parts maker as it emerges from bankruptcy.
The bankruptcy court overseeing Delphi's reorganization approved the equity investment plan earlier this month over the objections of hedge fund Highland Capital Management, which offered a rival $4.7 billion reorganization plan.
Delphi said in a filing with the Securities and Exchange Commission on Tuesday, Jan. 23, that it had signed the agreement cleared by the court with investors led by Appaloosa Management LP and Cerberus Capital Management on Thursday, Jan. 18.
Under the deal, the investors will buy $1.2 billion of Delphi convertible preferred stock and another $200 million in common stock under a rights offering as the former subsidiary of General Motors emerges from bankruptcy.
The group of investors, which also includes Harbinger Capital Partners, Merrill Lynch and UBS Securities, in addition agreed to buy any unsubscribed shares in that future equity offering for another $2 billion.
That planned investment would give the Appaloosa and Cerberus-led group between 30 percent and 70 percent of the new equity in Delphi on an investment ranging between $1.4 billion and $3.4 billion.
The investor group will also collect $76 million in fees from Delphi as a condition for agreeing to buy the initial tranche of $1.4 billion in new equity.
In addition, if Delphi's board were to terminate the deal to pursue an alternative investment deal, it would have to pay the Appaloosa-led group an additional $100 million, according to the filing with the SEC.
Cerberus and Appaloosa will each appoint three of the directors of Delphi's new 12-member board and, under terms of the deal, must agree on the selection of the executive chairman.
The agreement also sets a deadline of the end of January for Delphi to "use its reasonable best efforts" to reach a deal with GM and its major union, the United Auto Workers.
GM CEO Rick Wagoner said last week that a deal that would allow the restructured parts supplier to cut wages and benefits was possible in the "relatively near term."
GM, which spun off Delphi in 1999, has said that its total exposure to Delphi's bankruptcy would be between $6 billion to $7.5 billion.
Delphi filed the biggest bankruptcy in U.S. automotive history in October 2005, aiming to slash wages and benefits and close some operations to reorganize its money-losing domestic unit. International operations were excluded from the filing.