Platinum Equity to acquire auto supplier Delphi for $3.6bn

The Los Angeles-based turnaround firm will operate Delphi out of bankruptcy. General Motors, which filed for bankruptcy Monday, will take over certain Delphi plants and provide the company with $250m in bankruptcy financing.

Platinum Equity, the Los Angeles-based turnaround firm, will acquire the assets of auto supplier Delphi for $3.6 billion, allowing the company to emerge from Chapter 11 even as its largest customer, General Motors, has entered into bankruptcy.

Delphi: Platinum takes the wheel

Platinum will take over Delphi “with emergence capital and capital commitments of $3.6 billion”, Delphi said in a statement. The structure of the financing could not be determined as of press time.

Delphi has been in bankruptcy since 2005 and cancelled a deal with Platinum in March for the purchase of the company’s global steering operation for $190 million, plus another $257 million contribution from General Motors. The two sides couldn’t come to an agreement amid financial setbacks in the automobile industry, and Delphi moved to sell the business unit to GM.

Platinum will take over operations of Delphi and GM will buy some of Delphi’s plants. GM also has pledged to provide $250 million bankruptcy financing that will pay for the company’s exit from Chapter 11.

Under the deal, Platinum will be able to operate the business without labour-related legacy costs associated with the plants that GM will purchase. Other “non-core and non-strategic assets and liabilities” will be assumed by a reorganised entity called DPH Holdings that will sell off the assets over time.

Delphi’s reorganised business will “continue to develop technology and products and produce them for the benefit of its customers under the guidance of Platinum”, the company said in a statement. Delphi is the former auto-parts subsidiary of GM.

The company will be quickly liquidated if creditors do not approve the Platinum Equity plan, according to Rodney O’Neal, chief executive officer and president of Delphi. A final hearing to approve the plan is set for 23 July.

Delphi’s emergence from bankruptcy was delayed last year when an investment group led by Appaloosa Management backed out of a $2.55 billion plan to fund the company’s reorganisation. The delay in the company’s emergence from bankruptcy caused the company to terminate its salaried and certain hourly pension plans, the company said.

“Although the company explored numerous alternatives for its salaried pension plan and other ‘subsidiary’ plans, none were determined to be feasible,” Delphi said.

Delphi also said the delay in emergence, along with the economic decline of the US auto industry, will leave creditors with less recovery and some creditors with no recovery at all.

GM has assumed about $10 billion of liabilities from Delphi during the reorganisation process. The US automaker slid into bankruptcy Monday and it is not clear if the bankruptcy filing will affect the Platinum deal.

Platinum Equity recently acquired the San Diego Union-Tribune newspaper for an undisclosed amount. The Union-Tribune is San Diego’s only daily newspaper, with a weekday circulation of 270,000 subscribers.