GM Sells Stake in Fuji Heavy to Toyota and Investors (Update8)
Oct. 5 (Bloomberg) -- General Motors Corp., hobbled by three straight quarters of losses, agreed to sell its stake in the Japanese maker of Subaru cars and trucks for about half the amount it paid five years ago.
Toyota Motor Corp., GM's biggest competitor, will buy 8.7 percent of Fuji Heavy Industries Ltd. for about $315 million cash. GM will sell the remainder of its 20 percent stake in Fuji Heavy, worth about $422 million at today's closing share price, back to Fuji or on the stock market. GM's Fuji holding had been valued at $1.5 billion.
GM is raising cash after posting $1.4 billion in losses in the first half and losing its investment grade rating in May. GM's largest supplier and former subsidiary, Delphi Corp., is asking GM for financial help to stave off bankruptcy. GM faces further losses as U.S. consumers continue to boost purchases from Toyota and other Asian automakers.
``It's a matter of focus,'' said Alan Baum, director of automotive forecasting at Planning Edge, a consulting firm in Birmingham, Michigan. For GM, Fuji ``is a nice to have, but not a must have.''
GM said it will restate second-quarter earnings to reflect a reduction of between $700 million and $800 million in the value of its holdings in Fuji Heavy. Detroit-based GM lost $286 million in the period. It expects the sale to be completed in the fourth quarter.
Selling the Silver
``It's surprising how fast GM is selling off the family silver,'' said Graeme Maxton, a director of the Economist Intelligence Unit in Hong Kong. ``It rings alarm bells.''
In February, GM said it would pay Fiat SpA $1.9 billion to exit a five-year-old partnership and surrender a 10 percent stake in Fiat's auto unit. That transaction resulted in an $886 million expense to GM shareholders. As part of that agreement, GM kept some of the diesel engine operations that had been part of a GM- Fiat joint venture.
GM bought 20 percent of Turin, Italy-based Fiat Auto in 2000 in a plan to cooperate on development and production of engines and autos. Fiat raised its capital in 2003, cutting GM's stake to 10 percent. GM also owns 20 percent of Suzuki Motor Corp. and 8.4 percent of Isuzu Motors Ltd. Both Japanese companies declined to comment.
GM in March reassigned 11 executives to coordinate manufacturing and design of vehicles globally and cut costs by sharing more parts and engineers. The Fuji decision was made in part because of that realignment after it GM decided money from the sale of the Fuji stake would be better spent to develop other new cars and trucks, GM spokesman Tom Kowaleski said.
In August, GM said it paid $21 million to increase its share in South Korean automaker GM Daewoo Auto & Technology Co. to 50.9 percent, taking control of a unit that it is using to develop GM's next generation of small cars.
Fuji's Technology
A stake in Fuji Heavy will give Toyota access to Fuji's technology for batteries that can be used in hybrid gasoline- electric cars. Toyota aims to boost production of hybrids to 1 million by the early part of next decade. It sold 134,700 hybrid vehicles last year.
Toyota and Fuji Heavy plan to cooperate in ``vehicle development and production,'' Toyota Executive Vice President Mitsuo Kinosh!ta said. Toyota will use Fuji Heavy's ``various advanced technologies,'' he said, declining to elaborate. Kinosh!ta said Toyota has no plans to increase its stake.
Hybrids such as Toyota's Prius and Honda Motor Co.'s Civic are equipped with nickel hydride batteries made by Panasonic EV Energy Co. Fuji Heavy's chief executive, Kyoji Takenaka, has said his company's manganese lithium-ion batteries last longer than Panasonic's batteries and handle temperature extremes better.
Win-Win
``Toyota is not the kind of company that will buy shares without a business purpose,'' said Atsushi Osa, who helps manage $110 billion at Sumitomo Mitsui Asset Management Co. in Tokyo. ``It will gain from investing in Fuji Heavy if it gets technology that it doesn't have.''
Tighter government restrictions on vehicle emissions and rising fuel prices are boosting demand for hybrids. Toyota has sold a record 106,978 hybrids in the U.S. so far this year, more than the 2004 total for all carmakers.
``The alliance will be a win-win for Toyota and Fuji Heavy,'' said Koji Endo, an analyst at Credit Suisse First Boston in Tokyo. ``Toyota and Subaru buyers don't overlap, so it's one of the best matches.''
Toyota, of Toyota City, Japan, has a market value higher than GM's, Ford Motor Co.'s and DaimlerChrysler AG's combined.
Buyback
Fuji Heavy said it will buy back about 90 million of its shares on the market, paying as much as 57.6 billion yen ($506 million), and hold them as treasury stock. It will buy its shares on the market on Oct. 6, 7 and 11, the company said in a statement. Toyota will pay about 520 yen a share for its stake in Fuji Heavy.
GM expects to sell most of the 89 million shares in Fuji that aren't part of the Toyota sale through the Fuji repurchase plan, GM spokeswoman Toni Simonetti said. If there are shares that it can't sell to Fuji, those will be sold on the open market.
Fuji Heavy's shares have risen about 8 percent so far this year and gained 2.3 percent today to 540 yen.
The company said it will have a one-time charge of 5 billion yen from canceling the development of a cross-over vehicle with GM's Saab unit. Fuji Heavy lowered its earnings outlook for the full year to a profit of 12 billion yen from a forecast of a 15 billion yen profit.
Good, But .
``We've had a good partnership,'' Troy Clarke, president of GM Asia Pacific, said in a statement. ``There were not enough collaborative projects to sustain the alliance.''
GM shares fell 2 cents to $30.06 at 11:41 a.m. in New York Stock Exchange composite trading. The stock has fallen 25 percent so far this year. Toyota's shares have risen 26 percent so far this year and fell 0.9 percent today to 5,250 yen in Tokyo.
Delphi has said it may file for Chapter 11 bankruptcy protection before Oct. 17. Delphi is asking GM for $6 billion in aid, people familiar with the situation said earlier last week.
Fuji Heavy generates about 90 percent of sales from its automobile business. The other 10 percent comes from Fuji Heavy's aircraft, industrial machinery and other units. The company, set up in 1917 as an aircraft maker, is expanding its aerospace and aircraft business to supply parts for Boeing Co.'s new 787 aircraft.
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