Monday, April 13, 2009

GM Headed for the Chop Shop?

By Bernhard Warner
Posted Monday, April 13, 2009 - 3:41am

Today's Business Press
The clock is ticking down yet again on General Motors. The New York Times leads its business coverage today with an exclusive saying, "The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline," even if the carmaker thinks it can reorganize outside of bankruptcy court. President Obama's automotive task force is preparing the company for worst—a "surgical" bankruptcy, should it fail to resolve its negotiations with those carrying $28 billion in GM debt and with the unions, the newspaper writes, citing sources in the know. One scenario under discussion is to break GM up into two companies—a good one, purveying the most desirable brands, that would be acquired immediately after filing for bankruptcy, and a second with a junk pile of less beloved brands, plus debt, that would be wind down over time. Which GM brands could go? The speculation has been high in recent days that Pontiac and Buick "might not survive," reports.

Goldman Sachs is wrapping up a $5.5 billion fund to buy up private equity on the cheap from pension funds and endowments looking to reduce their exposure, the Wall Street Journal and Financial Times report this morning. According to the WSJ, it would be the largest fund of its kind ever raised; Goldman had raised four previous funds of this kind with a cumulative value of $6 billion in recent months. Goldman’s Vintage V fund, the FT explains, is designed to buy investors’ holdings in private-equity and buy-out funds. The so-called secondary market for private equity has become a lucrative business these days "as investors anticipate a flood of forced sellers trying to offload private equity stakes," the newspaper writes.

There are signs the M&A market is beginning to perk to life again. This morning, the WSJ reports two deals, one in the beer market, the other in pharma. The first is already clinched. Express Scripts acquired Well Point's in-house pharmacy-benefit-management business for $4.68 billion in cash and stock. The deal, the newspaper reports, "includes a 10-year contract for Express Scripts, the country's third-largest drug-benefits company, to provide pharmacy-benefit management services to WellPoint, the biggest health insurer with 35 million members." In a press release announcing the Well Point deal this morning, George Paz, chairman and CEO of Express Scripts, struck a populist tone, saying, "Now more than ever, as the nation focuses on health care reform, this collaboration between Express Scripts and WellPoint represents a shared commitment to achieving optimal health outcomes while driving out wasteful spending."

The second (this one, potential) deal involves Rolling Rock. Citing people "familiar with the matter," the WSJ reports Anhueser-Busch InBev NV "is exploring the sale of its storied but struggling Rolling Rock brand." Talk of disposing the iconic brew from Latrobe, Pa., comes just three years after InBev acquired it for $82 million. Of course, the Belgian InBev then went on to buy A-B for $52 billion last autumn, creating the world's biggest brewer. The problem is Rolling Rock sales have been in decline for the better part of a decade. InBev hired the investment bank Lazard to find a buyer for Rolling Rock earlier this year, a search that turned up few willing bidders, the newspaper reports.

AIG's troublesome financial-products unit is "on track" to be wound down by year-end, the WSJ reports. That's the good news. Gerry Pasciucco, the head of the unit, told the WSJ that last month's witch hunt over AIG bonuses at the unit may end up costing taxpayers more in the end. And while the furore seems to have died down elsewhere, Pasciucco won't let it go, saying "the financial-products staff still needs 'certainty' about compensation," the newspaper writes. The unit is now suffering from "hurt morale," since the controversy erupted, says Pasciucco, and that it "stunned people such that our wind-down has slowed down." Still, the "vast majority" of the $1.6 trillion in toxic assets the unit managed to amass is on schedule to be "de-risked" by year-end, Pasciucco tells the WSJ. Meanwhile, the FT reports this morning that Pasciucco's unit at AIG is conspicuously absent from a list of 2,000 financial services who have signed on to a new global protocol to overhaul the opaque derivatives market. AIG instead decided to initiate bilateral agreements with various market players in an effort to try to adhere to at least some of the protocol. Besides, once AIG winds down its financial products unit, it will be active less if at all in the derivatives market. In a year's time, the name AIG may just be a memory, anyhow. "AIG will continue to get smaller and smaller and smaller, until it doesn't register on anyone's Richter scale," caretaker CEO Edward Liddy told the Chicago Tribune.

And, finally, as the economic crisis worsens, Britons in larger numbers are heading back to their place of worship. But it's "for advice about debt and redundancy, not simply spiritual consolation," the FT writes. At churches, mosques, and synagogues across the United Kingdom, a "credit crunch network" of legal and financial professionals have set up programs to help their congregations with free advice and, in some cases, alms for the newly indebted. One program, Christians Against Poverty, is seeing 3,500 new referrals every day, a community ministry adviser for the Diocese of London told the newspaper.

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