GM and United Auto Workers to clinch deal on health care

Posted May 22nd 2009 1:00PM by Connie Madon
Filed under: Management, General Motors (GM), Employees

In a clock-stopping move, the United Auto Workers and GM have come to an agreement on a health care deal. The key provision of the deal is that GM would contribute shares instead of cash to a health-care trust known as a Voluntary Employees Beneficiary Association (Veba).

In so doing, the UAW would own 39% of GM. The mix of ownership would then be 50% to the government, 39% to the UAW and 10% to the bondholders, with the remaining 1% for current shareholders. The agreement still must be ratified by GM workers.

However, this is only part of the General Motors Corp (NYSE: GM) restructuring program. The next leg is to work out a deal with GM bondholders who refuse to come to any solution. The bondholders rejected their part of the agreement on the grounds that the UAW would own part of the company. The offer to the bondholders expires May 25, which is this Monday.

The bondholder deal is a sticky wicket because it would mean the $27 billion of GM bonds would be exchanged for equity shares. To bondholders it means exchanging a fixed-income security bond for shares that may or may not pay a dividend, hence the security of receiving a fixed return is lost.

In another move, GM plans to close 1,100 of its 6,000 dealerships and 245 of its Canadian dealerships or more than 40% of the total.

Do you believe that a final deal will be struck before this Monday?

Tags: bankruptcy, GM, inthenews, restructuring, uaw