The Delphi-UAW deal offers veteran workers cash payments in exchange for accepting lower wages, among other terms.
"I will approve the settlement," said U.S. Bankruptcy Judge Robert Drain, who called the pact fair, reasonable and thoughtfully negotiated. "It's clear to me that the settlement meets all of the tests."
Drain's approval came a day after Delphi said it had accepted an offer from an investment group led by Appaloosa Management LP to pump $2.55 billion into the supplier to bring it out of bankruptcy.
In a regulatory filing Thursday, Delphi said it had rejected a $3.3 billion plan from Highland Capital Partners LP to accept Appaloosa's offer. But in its own filing Thursday, Highland said it plans to pursue its bid for Delphi. A previous Highland bid was rejected.
The labor contract and investment plan are critical steps so Delphi can come out of bankruptcy by the end of the year.
The Appaloosa deal replaced an agreement worth up to $3.4 billion that would have given a group led by Appaloosa and Cerberus Capital Management LP up to 70 percent of Delphi stock. That plan was scrapped when Cerberus, which is buying the Chrysler Group, withdrew from the Delphi deal in April.
The Delphi suitors are among a number of buyout firms duking it out for control of auto sector assets. Appaloosa said in a filing Thursday that it sent an angry letter to Toledo-based Dana Corp.'s board of directors after its offer was spurned in favor of a bid from Centerbridge Capital Partners.
Appaloosa, Dana's largest shareholder, called the Centerbridge deal "absurd and one-sided" and said it was considering mounting a rival offer.
Delphi spokesman Lindsey Williams said the board took a number of factors into consideration before choosing Appaloosa.
"Delphi engaged in significant negotiations with competing potential plan investors and chose the investor group whose proposal the company believes is in the best interest of all of its stakeholders and will allow Delphi to successfully emerge from Chapter 11 with the greatest speed and execution," Williams said.
The Appaloosa investment plan must be approved by the bankruptcy court. The equity firm can back out if its offer is not approved by Aug. 16 and would be eligible for an $82.5 million termination payment. Delphi has requested a hearing on the financing plan as soon as possible.
The investment plan is key to Delphi coming out of bankruptcy, as is the UAW agreement. The labor pact, which union members approved last month, includes payments for longer-term workers who will agree to take a lower hourly wage in line with newer workers.
The union, which represents about 17,000 Delphi workers, also agreed to let the supplier close 11 of 21 UAW plants. The company will continue to operate 4 UAW plants, while 7 will be sold and operated by other companies.
Delphi must still reach agreements with other unions that represent about 3,000 workers and those negotiations continue.
Appaloosa will have less control over the company than under the prior deal with Cerberus, which would have given the equity firms the right to appoint a majority of the board of directors.
Under the new deal, a five-member search committee will have veto power over all board nominees. The committee includes one member named by Appaloosa, one named by another equity partner, one each for creditors and current shareholders and the company's current lead director, John Opie. Appaloosa will have three members of the nine-member board as will the Delphi creditors. The remaining three will be the CEO, the executive chairman and a yet-to-be-named member.
