Private equity firms offer Delphi up to $3.4 billion

A group of private equity investors has offered to pay as much as $3.4 billion to buy shares of Delphi Corp. and could wind up owning as much as 72% of the auto parts maker in a deal that creates a framework for its emergence from bankruptcy protection, Delphi said Monday.

The company -- which makes entertainment systems, chassis, electronics, air conditioning and other components of vehicles -- also said that its board had named President Rodney O’Neal to replace Chairman Robert S. “Steve” Miller as chief executive, effective Jan. 1. Miller will serve as executive chairman until the company exits Chapter 11 bankruptcy protection. O’Neal will also remain president.

Under the financing deal, Appaloosa Management, Cerberus Capital Management and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & Co. and UBS Securities, would invest $1.4 billion to $3.4 billion in the struggling company in exchange for common and preferred stock that would be issued in the first half of next year.

Delphi plans to dissolve its current 560 million shares and issue 135.3 million shares of new common stock. Current Delphi shareholders would divide up 3 million shares of the new stock and get the right to buy more new shares at a discount.

Of the private equity investors in the deal, Cerberus and Appaloosa are the largest. Appaloosa already holds 9.3% of Delphi’s current stock, according to LionShares.com.

The new investors would buy 30% to 72% of Delphi’s new stock, depending on how many current stockholders decide to acquire the new stock, Delphi said.

Delphi, the nation’s largest auto parts supplier, said the agreement was part of a plan to emerge from bankruptcy protection by the second quarter of 2007. A reorganization framework agreement, signed by Delphi, the investors and former parent General Motors Corp., was included in the deal.

The new investment would be used to fully fund Delphi’s pension plan, which at the end of 2005 was underfunded by $4.1 billion, the company said.

Separately, Delphi accepted a proposal from JPMorgan Chase Bank and a group of lenders to refinance the company’s $2-billion debtor-in-possession credit line and about $2.5 billion in loans.

The agreements still must be approved by a federal bankruptcy judge in New York, where a hearing is scheduled Jan. 5. The new investors and Delphi each have the right to terminate the agreement on or before Jan. 31 if Delphi fails to reach a wage and benefit agreement with its unions and a parts supply pact with GM.

The investors also can withdraw before Feb. 28, but that deadline can be extended.

The willingness of “very sophisticated” investors who already have a stake in Delphi to put more money into it speaks well for the supplier’s future, said Jim McTevia, a Michigan-based corporate turnaround specialist.

“It looks like Delphi is going to survive,” McTevia said. “It’s a vote of confidence in the company and the company’s ability to get out of Chapter 11 and become a bigger player in the global market.”

Replacing Miller with O’Neal also could help relations with the United Auto Workers union, whose president frequently criticizes Miller as a symbol of corporate greed. The UAW would not comment on the change.