General Motors will sell a 51 percent stake in General Motors Acceptance Corp., better known as GMAC, to a consortium led by Cerberus Capital Management for approximately $14 billion in cash over three years, with an estimated $10 billion by closing, GM said today.

GMAC is the troubled auto manufacturer’s finance arm, and is its most profitable unit. GM said the consortium buying the stake includes Cerberus Capital, a private investment firm, and includes Citigroup and Aozora Bank Ltd.

GMAC’s subsidiaries include GMAC Insurance and GMAC Mortgage. GMAC Mortgage originates single-family and commercial real estate loans, invests in mortgage-backed securities, and packages nonconforming single-family home loans for sale to investors.

The deal ends six months of negotiations but the amount paid by Cerberus is less than the amount analysts had expected, media accounts said.

“The transaction strengthens GMAC’s ability to support GM’s automotive operations, improves GMAC’s access to cost-effective funding, provides significant liquidity to GM and allows GM to continue to participate in the profitability of GMAC over the long term through its 49 percent ownership stake,” GM said in a statement.

The deal provides a boost in liquidity coming at a time when the No. 1 U.S. automaker has agreed to a turnaround plan involving the buyout of thousands of union employees.

“We look forward to working with Cerberus to maintain and grow GMAC’s traditional strong performance and contribution to the GM family,” said GM Chairman and Chief Executive Officer Rick Wagoner. “This agreement is another important milestone in the turnaround of General Motors.”

As part of the transaction, GM and GMAC will enter into a number of 10-year agreements under which GMAC will continue to support GM’s automotive operations and provide GM and its dealers and customers with the same broad range of financial products and services it does today, the company said.

GMAC will continue to be the preferred and exclusive provider of various financial products involving GM-sponsored consumer and wholesale marketing incentives around the world, according to GM.

GM said that employment levels are not expected to change as a result of this transaction.

Under the agreements, GM will have an option to acquire GMAC’s global automotive finance operations, under certain conditions, including an investment-grade rating at GM. This option is exercisable for 10 years after the closing of the transaction.

The $14 billion in cash that GM is to receive as part of the transaction includes $7.4 billion from the Cerberus-led consortium at closing and an estimated $2.7 billion cash distribution from GMAC related to the conversion of most of GMAC and its U.S. subsidiaries to limited liability companies, the company said.

GM will retain about $20 billion of GMAC automotive lease and retail assets and associated funding with an estimated net book value of $4 billion that will monetize over three years, the company said.

GM also will receive dividends from GMAC equivalent to its earnings prior to closing, which largely will be used to fund the repayment of various intercompany loans from GMAC. As a result of these reductions, GMAC’s unsecured exposure to GM is expected to be reduced to approximately $400 million and will be capped at $1.5 billion on an ongoing basis.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Limited time: Get 30 days of Inman Select for $5.SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription