NEW YORK/BANGALORE A U.S. judge on Sunday approved General Motors Corp's bankruptcy sale in a move that will allow the company's most profitable assets to exit bankruptcy protection under government ownership.
Judge Robert Gerber of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan said the sale was GM's only option and that completing it would "prevent the death of the patient on the operating table." He approved the sale just over one month after GM filed for bankruptcy, in the largest U.S. manufacturing bankruptcy in history.
Under the deal brokered by the Obama administration, "New GM" will emerge as a more streamlined automaker operating the best parts of the old company, including its Chevrolet and Cadillac brands, with a cheaper workforce, smaller dealer network, and much less debt. The rest of the company will be liquidated.
Gerber issued a four-day stay of the order approving the sale, which should allow it to close as early as Thursday. Such stays are typical and allow for possible appeals. One group of consumers objecting to the sale has already filed court papers for an appeal, but the dissenting bondholder group said it would drop its challenge to the sale.
The sale marks the second big victory for the Obama administration's auto task force. It helped broker the disposal of Chrysler LLC to a group led by Italy's Fiat SpA last month.
GM, which has struggled with a sharp decline in U.S. auto sales amid the recession this year, filed for bankruptcy protection on June 1. The company had warned of "catastrophic" consequences to the auto industry if the sale were blocked, and the U.S. government said it could walk away from funding the iconic U.S. automaker if a deal were not approved by July 10.
"GM cannot survive with its continuing losses ... and without the governmental funding that will expire in a matter of days," Gerber wrote in the 95-page opinion.
Gerber shot down objections to GM's sale from dealers whose contracts are being terminated, groups of consumer and asbestos claimants that argued they will now be unable to sue GM for their injuries, and a group that calls itself the "Unofficial Committee of Family & Dissident GM Bondholders."
Gerber said the dissenting bondholders' argument that GM could have restructured itself under a more traditional Chapter 11 reorganization plan, in which creditors would have been able to vote, was unrealistic.
"As nobody can seriously dispute, the only alternative to an immediate sale is liquidation -- a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates," Gerber wrote.
"In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing."
He also rejected arguments that the U.S. government, which has loaned GM billions of dollars before and during the bankruptcy, had been overbearing in its negotiations to restructure the automaker.
"The U.S. Treasury, in making hard decisions about where to spend its money and make New GM as viable as possible, made business decisions that it was entitled to make," Gerber wrote.
The "old GM," which includes unpopular brands and unneeded factories and liabilities, will remain behind in bankruptcy court to be liquidated.
The bondholder group on Monday said it will likely forgo an appeal to challenge the sale, largely due to the costs of pursuing an appeal.
"The entirely new and expensive level of commitment that would be needed is regrettably beyond our means," Hal John, chairman of the Unofficial Committee of Family & Dissident GM bondholders, said in a statement.
More than 50 percent of GM's bondholders had supported the deal, and the dissenting group was composed of only 3 individual bondholders, who said they represented the interest of more than 1,000 bondholders who felt left out of the process.
An attorney for a group of individual consumers with product liability claims against GM filed papers with the bankruptcy court to appeal the sale order early on Monday. While "New GM" has agreed to take on future claims from such victims, the sale would leave these current lawsuits with little recourse.
In his opinion, Judge Gerber said the liability objection was the only "truly debatable" issue in the case; but citing Chrysler's sale as a precedent, he ultimately agreed with GM that it was necessary to allow the company to leave such claims behind it.
The U.S. Treasury has agreed to provide $60 billion in financing to the new company, including a proposed $50 billion giving it a 60 percent stake in the company.
The UAW would gain a 17.5 percent stake, the Canadian government about 12 percent and GM bondholders about 10 percent of the new company.
At a three-day sale hearing that concluded July 2, the dissenting bondholder group and some individual bondholders representing themselves had objected to the deal, but no bidders presented an alternative.
An auto task force official said earlier this month that the government could conduct an initial public offering for the "New GM" as soon as 2010.
(Reporting by Emily Chasan and Ajay Kamalakaran; Editing by John Stonestreet, Gerald E. McCormick, Gary Hill)