Auto parts supplier Delphi Automotive LLP said Thursday it is buying back ownership stakes from General Motors Co. and the federal government for $4.4 billion, a move that strengthens the company's balance sheet ahead of a potential public offering.
Delphi will pay $3.8 billion for shares owned by GM and $594 million for shares owned by the Pension Benefit Guaranty Corp. Delphi is using cash as well as a $3 billion credit facility for the purchase.
"These transactions represent an important step in positioning Delphi to continue to increase shareholder value," Delphi President and CEO Rodney O'Neal said in a statement.
The deal also helps GM boost its first-quarter earnings, which will be critical for the automaker as it continues to woo investors after its own public offering in November.
GM said it will book a gain of $1.6 billion from the sale. It paid $1.7 billion for the stake in Delphi in 2009, but that was revalued at $2 billion at the end of last year. GM also noted that it sold its preferred stock in Ally Financial for $1 billion earlier this month, for a first-quarter gain of $300 million.
"We are systematically delivering on our commitment to strengthen and simplify our balance sheet," said Dan Ammann, who will become GM's senior vice president and chief financial officer Friday.
Delphi is GM's former parts division. It was spun off from GM in 1999 and went into bankruptcy protection in 2005. Delphi was acquired by a group of private investors in 2009.
The Pension Benefit Guaranty Corp. obtained its interest as a partial settlement of its claims when Delphi terminated its pension plans in bankruptcy court. The PBGC has been paying pension benefits to 70,000 Delphi workers and retirees since 2009.
The agency said it doesn't yet know how Thursday's action will affect retiree benefits but will inform Delphi retirees when its calculations are complete.
The PBGC has taken responsibility for $6.1 billion in pension payments from Delphi, making it one of the largest financial losses in the agency's 36-year history.