General Motors Acceptance Corp. is drawing interest from various suitors, including Citigroup Inc. and Wachovia Corp.
Citigroup Inc. and hedge fund Cerberus Capital Management are formulating a bid for a majority stake in GM’s financing giant, according to The Wall Street Journal, while Wachovia Corporation and Kohlberg Kravis and Roberts Co. are also planning a separate joint offer. Meantime, other private equity firms are considering joining one of the groups.
Citigroup is expected to bid approximately $11.5 billion, which would have to be in the form of cash, rather than debt. Increasing GMAC’s debt would have a negative effect on its credit rating, which would defeat the purpose of the sale.
With $28.4 billion in cash on its balance sheet, Citigroup would enhance its position in the auto-lending area by acquiring GMAC. Citigroup is already a substantial player in this market, with $46.6 billion in auto loans in 2005 along with another $6.4 billion in auto-loan organizations.
A majority share in GMAC would give Wachovia a much larger presence in mortgages and auto-finance as well as a cross-selling opportunity by acquiring access to a substantial network of households.
General Motors Chief Executive Officer Rick Wagoner had announced last October that the company was seeking a majority investor for its GMAC unit in order to obtain an investment grade rating and gain access to the debt markets, which many consider vital to GM’s survival.