GM expects to profit as much as 750 million on the transaction.

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TOKYO (Reuters) - Embattled U.S. auto giant General Motors Corp. said on Monday it would sell 17.4 percent of its stake in Suzuki Motor Corp. back to the Japanese car maker, raising around $2 billion in much-needed cash to restore its tattered balance sheet.

The sale would leave GM with a pre-1998 level of 3 percent in Suzuki.

It ends months of speculation about a possible unraveling of their equity relationship after the world's biggest auto maker unloaded its entire 20 percent stake in Japan's Fuji Heavy Industries Ltd. last year, also to raise money.

The Detroit-based auto maker lost $8.6 billion in 2005 and is undergoing sweeping restructuring driven in part by new board member Jerry York, an aide to GM's largest individual shareholder, Kirk Kerkorian. York has called for more aggressive turnaround efforts, including the sale of various assets around the world.

GM and Suzuki, which first formed a capital tie-up in 1981, said they would continue to work together at the operational level, including through joint product distribution, development of advanced powertrain technology, ownership of a Canadian assembly plant and Suzuki's 11 percent equity participation in GM's South Korean unit, GM Daewoo Automotive & Technology Co.

"Our relationship is strong, and we look forward to our continued partnership," GM Chief Executive Rick Wagoner said in a statement.

"This transaction will allow us to preserve our business relationship, while further building up GM's already significant liquidity position during this critical phase of our turnaround."

GM said it expected a pre-tax gain of $550 million to $750 million from the sale.

Suzuki, a successful compact car maker expecting its sixth straight year of record operating profits this year, said it would use cash at hand to buy back GM's 92.36 million shares in it for a maximum 229.98 billion yen ($1.97 billion).

The purchase, planned through an open-market buyback program before the Tokyo Stock March opens on Tuesday, would be made at Monday's closing share price of 2,490 yen.

"I think 3 percent is an appropriate (ownership) level," Suzuki CEO Osamu Suzuki told a news conference in Tokyo, adding he had always suggested a stake that was similar in percentage to what GM contributes to Suzuki's revenue, or around 3 percent.

SUZUKI SHARES RESILIENT

Shares in Suzuki had dropped 4.4 percent early Monday after a Nihon Keizai Shimbun business daily reported at the weekend that GM would sell its entire 20.4 percent stake in it. But they pared most of those losses to end down 0.4 percent, before the announcement, as investors overcame fears about the impact of such a sale.

Suzuki's planned share buyback would weigh on its cash reserves at a time it has budgeted outlays of 1 trillion yen ($8.6 billion) over the five years to 2010 to expand production capacity and develop new cars, but analysts said its fundamental strength remained firm.

Suzuki had 290 billion yen ($2.5 billion) in cash at the end of 2005 and has forecast an operating profit of 108 billion yen for the year to March 31.

"We're not too worried about the situation, as Suzuki's fundamentals and growth prospects are solid," said Christopher Richter, a Tokyo-based auto analyst at CLSA Asia-Pacific Markets.

"Any weakness on this news is a buying opportunity," he said, noting also that Suzuki's actual capital spending so far had fallen short of the auto maker's projection.

Suzuiki said the repurchase of its shares would not affect its profit outlook for the business year ending this month.

REPORT HITS ISUZU SHARES

The reported sale of the stake in Suzuki also stoked market reaction to the possibility of a sale of GM's 7.9 percent stake in Isuzu Motors Ltd., sending the Japanese truck maker's shares down 2.84 percent to 377 yen.

But Troy Clarke, president of GM's Asia-Pacific operations, said the U.S. auto maker had no plans now to sell its stake in Isuzu, saying they have many "mutual and beneficial" projects.

"We will assess over time the role of equity that we have in Isuzu...but we have really nothing to say at this time," Clarke told reporters in a telephone conference in Tokyo.

Credit Suisse analyst Koji Endo, noting that GM's stake in Isuzu was modest at around 35 billion yen ($300 million), said he did not expect an immediate sale.

"GM has the strongest synergies with Isuzu among the three firms (Isuzu, Suzuki and Fuji Heavy)," he wrote in a report, adding that Isuzu is an important supplier, with GM purchasing nearly 200 billion yen worth of diesel engines and other parts from it annually.

(Additional reporting by Yuko Inoue, Sachi Izumi in Tokyo, Michele Gershberg in New York)

Copyright 2006 Reuters

Damn straight. GM needs to be putting the nail in the coffin of Suzuki, Subaru, Fiat, and other unreliable partners that kept it down in the past.

good to hear it won't affect CAMI

Ok ths sounds good over all I have no issue with it as long as they use the money wisely. One thing I think it should be used for is the Malbu and Impala so that they can sell more models and make some money. Also increase quality and design on the inside and out of both cars.

That or use it to get the mild hybrid systeminto more car that are under 30K.

Damn straight.  GM needs to be putting the nail in the coffin of Suzuki, Subaru, Fiat, and other unreliable partners that kept it down in the past.

Kept it down? Suzuki and Subaru did nothing of the kind. Even Fiat gave GM a partner for powertrains in Europe, but Suzuki and Subaru were squandered opportunities on the part of GM.

so is Suzuki still part of GM for the purposes of these forum topics? or does it get like Subaru did?

They still own roughly 3 percent, right? So would that stop them from continuing on the way they've been for this long?

so is Suzuki still part of GM for the purposes of these forum topics?  or does it get  like Subaru did?

Suzuki & GM still have DAT, so Suzuki will continue to be considered a "Worldwide Partner" at C&G.

$750 million doesn't seem like a whole lot.

$750 million doesn't seem like a whole lot.

Can I borrow 5 million until payday?

Seriously making 3/4 of billion dollars is a lot better than loosing a few billion on Fiat.

$750 million doesn't seem like a whole lot.

it doesnt seem like a whole lot... but what did GM do for that money? nothing just sit on it...

its about a 60% profit... thats awesome!

Kept it down? Suzuki and Subaru did nothing of the kind. Even Fiat gave GM a partner for powertrains in Europe, but Suzuki and Subaru were squandered opportunities on the part of GM.

Of course!!! In the world of the media it's ALWAYS GM's fault!

They don't really have a choice - they're running out of cash fast. GM needs to sell these stakes before they even think about selling GMAC, which is proving difficult to sell anyway.

Also the success of GMDAT and GM China must to some extent negate the need for Suzuki and Isuzu as Asian partners. They've got all the cheap production capacity and small car development expertise they need.

They don't really have a choice - they're running out of cash fast.  GM needs to sell these stakes before they even think about selling GMAC, which is proving difficult to sell anyway.

Also the success of GMDAT and GM China must to some extent negate the need for Suzuki and Isuzu as Asian partners.  They've got all the cheap production capacity and small car development expertise they need.

its not difficult to sell GMAC... its just difficult to conceive selling off your most profitable portion for a one lump sum...

its good that Suzuki purchased the shares rather then some other automaker... but as i read in an article... if GM can raise money from pulling their cash together rather then selling the profit machine GMAC (IIRC, which by the way profited 2 billion last quarter for GM) GM needs to keep GMAC, and by selling suzuki or izusu to raise cash, then leave GMAC in the corperation...

In actuality it *has* been tough to sell GMAC for various reasons. I think the point is it's been a good thing they've been forced to sell other assets. It's always nice to gain the cash from an asset sale but not at the expense of the profit generation engine that GMAC represents. Think of it like retiring - you gain your time back that was previously spent working, but you lose the income.

its not difficult to sell GMAC... its just difficult to conceive selling off your most profitable portion for a one lump sum...

its good that Suzuki purchased the shares rather then some other automaker... but as i read in an article... if GM can raise money from pulling their cash together rather then selling the profit machine GMAC (IIRC, which by the way profited 2 billion last quarter for GM) GM needs to keep GMAC, and by selling suzuki or izusu to raise cash, then leave GMAC in the corperation...

I think that profits from GMAC going foward will not be as good as know. Still I think this sale was good. Not that I know what I am talking about.