Reuters is reporting that GM and Chrysler are close to striking a deal (see Major Issues Resolved, hat tip Calculated Risk). All that’s left is seemingly the amount by which you and I (the American taxpayer) will be participating, and how (i.e., the capital structure – whether via debt, equity, or some combination of the two).
According to Reuters:
General Motors Corp and Cerberus Capital Management have resolved the major issues in a proposed GM-Chrysler merger but the final form of any deal will depend on the financing and government support available, sources familiar with the talks said on Wednesday.
As GM seeks some $10 billion in U.S. government aid to support the deal, Chrysler owner Cerberus is in its own set of intense discussions with banks to refinance $9 billion of Chrysler debt, the sources said.
As I have pointed out in prior posts (see More GM and Chrysler Shenanigans, A Disastrous Deal and GM + Chrysler = Ugh!), I do not view a combination of GM and Chrysler as a welcome development. In fact, turning these two struggling companies with weak balance sheets into one solid company with a strong balance sheet would require so much reorganization that the amount of layoffs, plant closures, and product/brand rationalizations required to achieve that end would effectively eliminate a company the size of Chrysler from the marketplace.
Instead, I believe that money would be better spent on GM alone. My counter-proposal, therefore, was to pump $10B directly into GM (in exchange for warrants or shares) to help it weather the crisis.
My belief is that we will get more bang for our buck from an investment in GM alone than we would from an investment in a combined GM and Chrysler. GM is more systemically important than Chrysler and it is in a much better operational position looking forward. There is no need to invest spend $10B on a complicated and messy merger, coupled with an expensive post-merger integration. Moreover, as a US taxpayer, I object to the use of my money to bail out Cerberus, a private investment company that was the poster-boy for excess during the credit-fueled private equity binge.
From here, the only route left to go is to take these directly objections to our representatives, …which is exactly what I plan to do.