Onex, Carlyle to acquire GM division for $5.6bn(2)

As GM shaves off assets to improve liquidity, Onex and The Carlyle Group have come away with US-based Allison Transmission.

The Carlyle Group and Onex Corporation announced today an agreement to acquire Allison Transmission from General Motors for $5.6 billion (€4.2 billion).

The equity investment of about $1.5 billion will be split equally between Carlyle and Onex. Onex’s investment will be made by Onex Partners II, Onex’s large-cap private equity fund. Carlyle’s share of the investment will be made by Carlyle Partners IV, the firm’s flagship US buyout fund. The deal is expected to close in the third quarter of 2007.

Allison Transmission designs and manufactures automatic transmissions for on-highway trucks and buses, off-highway equipment and military vehicles. The company generates annual revenues in excess of $2 billion. Lawrence Dewey, currently Allison’s president, will become chief executive officer.

The deal is part of GE’s long term plan to improve its liquidity. Last year the firm drafted a plan to cut its fixed costs by $9 billion, and subsequently sold of 51 percent of GMAC, its former lending unit, to Cerberus and Citibank. GM, burdened by high labor costs and rising fuel prices, has been going through an extensive restructuring process during the past few years in order to improve its profitability.

Publicly traded Onex has been involved in several deals of late as it invests its second fund, which closed on US$3.45 billion in August of last year. The firm is currently one of three investor groups in take-private talks with BCE, Canada’s $30 billion telecom giant. Earlier this year Onex agreed to buy Kodak Health Group, a medical imaging and healthcare information technology solutions provider, for $2.36 billion.

The acquisition of Allison Transmission is Carlyle’s second deal in as many weeks. Last week Carlyle, along with Clayton Dubilier & Rice and Bain Capital agreed to pay $10.3 billion for the wholesale distribution business of Home Depot. Carlyle is reportedly in the midst of raising a new $17 billion fund.