UAW trust to get large chunk of GM shares

updated 6:38 p.m. ET May 26, 2009

DETROIT - A cost-cutting deal between the United Auto Workers and General Motors Corp. will give a union-run health care trust fund a smaller stake in the automaker than previously expected, but it also could be the catalyst that allows the company to restructure outside of bankruptcy court.

GM, which has received $19.4 billion in government loans and faces a Monday deadline to restructure or be forced into bankruptcy protection, reached a concession deal with the UAW last week that gives the trust fund up to 20 percent of the company’s shares while freezing wages and cutting performance bonuses and cost-of-living raises.

Factory-level union leaders from across the U.S. unanimously endorsed the deal at a meeting Tuesday in Detroit. The union’s roughly 61,000 GM workers must vote on the agreement by Thursday.

In a summary of the deal obtained by The Associated Press, the union said it would get 17.5 percent of GM’s common stock, plus a warrant for an additional 2.5 percent, as partial payment of the $20 billion that GM must put into a trust that will start paying retiree health care costs next year.

The trust also will get $6.5 billion of preferred shares that pay 9 percent interest, plus a $2.5 billion note. The remaining $10 billion will come from health care trust funds that GM already has set up.

The trust will also get a seat on GM’s board, although it will have to vote at the direction of GM’s other independent directors.

The UAW deal is another piece of GM’s quest to restructure out of bankruptcy. The Canadian Auto Workers union approved wage reductions and other concessions Monday. But GM’s unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt. Analysts say it’s unlikely enough bondholders will approve the offer, meaning GM would still be forced to file for Chapter 11.

But the UAW trust is getting far less in stock than GM said it would get previously. The company disclosed in regulatory filings that it was negotiating to give the government half its shares, with the union trust getting 39 percent. The remaining 1 percent would go to existing shareholders. Upon approval of the exchange, GM would issue 62 billion new shares, then do a 1-for-100 reverse stock split.

But with the UAW’s share at 20 percent, that frees 19 percent to go to either the government or the bondholders, who had until 11:59 p.m. Tuesday to accept or reject the exchange offer.

“It looks like the creditors will get a richer offer that hopefully will induce them to avoid a bankruptcy filing,” said Harlan Platt, a professor at Northeastern University in Boston who teaches corporate turnarounds.

GM has said it could extend the deadline for the bond exchange and will decide that Wednesday.

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