Two bidders lock horns for Delphi

Delphi’s biggest shareholders have locked horns over their competing takeover bids for the bankrupt automotive parts supplier, with each sharply criticising the other’s terms and tactics.

Highland Capital Management, a Texas-based hedge fund, launched a $4.7bn bid for Delphi on Thursday, countering a $3.4bn offer by a group led by Appaloosa Management and Cerberus Capital Management.

Appaloosa and Highland are, respectively, Delphi’s biggest and second-biggest shareholders. Harbinger Capital, a member of the Appaloosa group, also has a sizeable stake. Delphi is one of several financially-distressed north American parts makers that have drawn interest from private equity groups in the past year.

Pat Daugherty, head of distressed debt at Highland, said: “We see a good management team, We see a strong electronics play besides its auto exposure. We think they’re getting their cost issues under control.”

Jim Dondero, Highland’s founder and chief executive, and David Tepper, his counterpart at Appaloosa, earlier discussed including Highland in the Appaloosa group.

But Highland said the Appaloosa proposal would give Appaloosa and Cerberus “disproportionate equity ownership at the expense of current stockholders”.

In particular, Highland took aim at the Appaloosa group’s proposal to buy $1.2bn in Delphi convertible preferred securities and $200m in common stock that would not be available to other equity holders. The Appaloosa group could end up controlling as much as 80 per cent of Delphi.

“If they were to have their way”, Mr Daugherty said, “you’re talking about day-one value of about $1.1bn that ends up in the pockets of this select group at the expense of current shareholders.” Highland also criticised the Appaloosa plan for giving the group control over Delphi’s board.

Appaloosa takes the view that its proposal will smooth the way to Delphi’s emergence from Chapter 11 protection, bringing handsome benefits to all shareholders.

A court hearing to consider the Appaloosa proposal has been set for January 5 with objections due by January 2.

Highland said it did not believe that “this compressed timetable is conducive to the process required for a board of directors to consider a proposal of this complexity and magnitude”.

Delphi shares, which are traded on the Pink Sheets over-the-counter market, were almost a third higher at noon on Thursday, trading at $3.76.

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