General Motors said on Thursday that a large part of the proceeds from the sale of its stake in Hughes Electronics would likely be used to fund its US pension plan, which faces massive liabilities that threaten its credit rating, Reuters reported.
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“We haven’t made a final decision until we see the money … It’s targeted largely at the pension fund; I think that’s a safe assumption,” GM chief financial officer John Devine told analysts on a conference call according to Reuters.
Reuters said GM would receive $US3.8 billion from Rupert Murdoch’s News Corp for its 19.9% interest in Hughes, including about $3.1 billion in cash and the remainder in News Corp. preferred American Depositary Receipts (ADRs).
GM would also receive a special $275 million “value creation” dividend, upon completion of the deal, for converting its Hughes shares from a tracking stock to an asset-based stock, Reuters added.
The news agency noted that GM’s pension plan, the largest private pension plan in the United States, ended 2002 underfunded by $19.3 billion, due mainly to three consecutive years of stock market declines.
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By GlobalDataOn Wednesday, Standard & Poor’s Corp. lowered its debt rating outlook on GM to negative from stable, questioning how the world’s largest car maker would fund both its pension and mounting health care liabilities. The credit rating agency, which also has a negative outlook for Ford, said the second largest car maker was more likely to face a downgrade than GM, Reuters added.
According to Reuters, S&P analyst Scott Sprinzen estimated that GM’s pension liability had grown this year to between $23 billion and $26 billion. GM’s pension plan would also get a boost from its own sale of Hughes shares to News Corp.
Reuters said GM’s employee benefit plans — including its US pension fund and its employee health care funds — hold 330 million Hughes shares. Last month, GM contributed 108.2 million Hughes shares to the pension plan.
Under the deal, Hughes shareholders would swap all their stock on a one-for-one basis for new Hughes shares and then exchange 17.5% of those shares for $14 per share in cash or News Corp. stock, Reuters said.
According to Reuters, Devine said GM has no requirements to contribute to the pension plan this year to avoid funding penalties. But the car maker would like to add to the pension plan sooner rather than later.
“Our game plan on pensions, to the extent that we can afford it, we like to make contributions earlier than we have to,” he said, according to Reuters. “The most important issue is getting our pension funded as soon as we can.”
Reuters noted that GM said earlier this year that it planned to contribute up to $8 billion to the pension plan by the end of 2004. GM also has targeted raising $10 billion in cash this year, partly through asset sales such as the Hughes deal, and from its operations.
Reuters said the Hughes stake is the latest asset that GM has agreed to sell to raise cash. Late last year, defence contractor General Dynamics agreed to buy GM’s defence unit for $1.1 billion in cash and, last month, GM said it was considering selling the massive commercial mortgage arm of its General Motors Acceptance Corp. unit, Reuters added.
