Delphi expects Cerberus to quit investor group

CHICAGO (Reuters) - Delphi Corp. DPHIQ.PK said on Thursday it expects Cerberus Capital Management LP to withdraw as co-leader of a proposed $3.4 billion investment to support the auto-parts maker's emergence from bankruptcy.

Delphi, which filed for bankruptcy protection in October 2005, said there were differences of opinion over the future value of the reorganized company.

Cerberus declined to comment on Delphi’s announcement. Delphi also said the private equity firm may still participate in its exit financing plans.

Delphi said it would talk to creditors and other members of the investor group, and may consider adding investors. Highland Capital Management LP, Delphi’s second-largest shareholder, also expressed renewed interest in the company.

The investment plan, approved in January by the U.S. Bankruptcy Court, remains contingent upon Delphi reaching agreements with its unions and former parent General Motors Corp. GM.N that are satisfactory to investors.

Expectations that Cerberus will pull back from the Delphi reorganization underscored the difficulty in negotiating new labor contracts between the bankrupt supplier and the United Auto Workers union, Argus Research analyst Kevin Tynan said.

“For them to take money off the table is a significant indication of where things are at right now,” Tynan said.

The other planned investors, including co-leader Appaloosa Management LP, are expected to continue as investors, Delphi said. Cerberus had pledged to invest up to $1.7 billion, with the other half coming from the rest of the group.

Delphi’s bankruptcy filing in 2005 was partly due to production cuts at U.S. automakers and high wage and benefit costs inherited in its 1999 spinoff from GM.

Delphi said it was meeting with its creditors and others to discuss the revisions and that it expected the creditors committee to consider an increase in the stock portion of the recovery it was seeking for general unsecured creditors.


Delphi had envisioned emerging from bankruptcy within 18 months of the filing, but that target has passed.

On Thursday, Delphi said that anticipated changes in investors were not expected to stop it from filing a reorganization plan by July 31, or exiting bankruptcy by the end of 2007.

Delphi also said that while it expected to alter the proposal approved by the court in January, no parties to the agreement have filed formal notice to withdraw. The agreements remain in effect until they are changed or terminated.

It remained unclear what impact the expected departure of Cerberus from the investor group might have on Delphi’s negotiations with the UAW and other unions. A UAW representative could not be reached for comment.

The unions have vehemently opposed Delphi proposals for steep wage and benefit cuts for hourly workers.

The UAW disclosed in March that it rejected a very recent Delphi offer, and union officials urged GM to take responsibility for its former parts unit. The unions also have threatened to strike should Delphi seek to impose cuts.

Argus Research’s Tynan said securing a deal between Delphi and the UAW now could prove more difficult as the union gears up for contract talks with GM that begin this summer.

“I think the union is starting to feel like they’re getting it from all sides now,” Tynan said. “They probably don’t want to be too flexible now or show weakness, however you want to characterize it.”

Morningstar analyst John Novak said it also could be a case of Cerberus picking and choosing its battles as it awaits the outcome of a bid for DaimlerChrysler AG's DCX.NDCXGn.DE Chrysler Group.

“This shows the challenges private equity firms face if they think they can drive radical changes in this industry without the UAW,” Novak said.

Novak said the long-running and complicated Delphi deal also showed some of the difficulties a private equity firm would face in taking Chrysler private against UAW resistance.

Cerberus is active in the automotive sector. It has a possible deal to buy bankrupt autobody frames producer Tower Automotive Inc. TWRAQ.PK, it led a group that took a controlling stake in GMAC and it is lead bidder for part of bankrupt Collins & Aikman Corp.'s CKCRQ.PK North American business.

Earlier on Thursday, Highland said it had requested a meeting with Delphi to discuss an alternate investment plan after published reports that the Cerberus and Appaloosa led plan had hit an impasse.

Delphi had rejected an alternative investment proposal from Highland in favor of pursuing the current offer.

Additional reporting by Kevin Krolicki in Detroit