GM to Sell Allison Transmission Unit for $5.6 Billion

GM shares rose 2% to close at $38.15, their highest level in seventeen months, on news the company has agreed to sell its Allison Transmission unit to The Carlyle Group and Onex Corp. for $5.6 billion. The proceeds of the sale will be added to the $16 billion the company has set aside over the past two years from asset sales, layoffs, plant closings and employee buyouts. "The $5.6 billion was definitely a positive surprise for GM investors," said money manager Dan Poole. Lehman Brothers analyst Brian Johnson had forecast a sale price on the order of $3 billion. Some proceeds are expected to be devoted to the development of electric vehicle systems, a technology the company needs to compete with Toyota. Other funds might go toward establishing a health care fund for union retirees, which could be an issue during July's contract negotiations. The transaction is the latest in a series of auto industry purchases by private equity firms and hedge funds, including last year's acquisition of half of GM's finance unit by Cerberus Capital Management and this year's $1.5 billion purchase by Carlyle of Goodyear's Engineered Products division. Shares of Onex closed up 5.4% at $37.60, their biggest one-day gain in three years.

Sources: Press release, Bloomberg, Financial Times, Wall Street Journal, TheStreet.com
Commentary: GM And Onex Up On Transmission Deal • GM Unit Pursued by Private Equity • GM's Balance Sheet: A Sign of Impending Doom
Stocks/ETFs to watch: General Motors Corp. (GM), Onex Corp. (OCX). Competitors: Daimlerchrysler AG (DCX), Ford Motor Co. (F), Toyota Motor Corp. (TM). ETFs: PowerShares FTSE RAFI Consumer Goods (PRFG), Rydex S&P 500 Pure Value (RPV)
Conference call transcripts: Q1 2007
Related: Allison Transmission

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