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How GM made the deal to buy AmeriCredit

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How GM made the deal to buy AmeriCredit

David Shepardson / Detroit News Washington Bureau

Washington -- General Motors Co. announced on July 22 a $3.5 billion deal to acquire Texas-based subprime lender AmeriCredit to help it boost sales and leasing, especially among customers with less than perfect credit.

GM chairman Edward Whitacre Jr. said last month the deal "came together in about a month, start to finish. No consultants, no drawn-out analysis -- and no doubts, either."

In fact, it was precisely 30 days from when Whitacre phoned AmeriCredit CEO Daniel Berce on June 23, asking him if he wanted to merge the companies.

Newly disclosed details of the talks show the deal nearly fell apart just a week before it was announced -- and that GM originally proposed to pay about $200 million less for the lender.

AmeriCredit shareholders will vote Sept. 29 in Fort Worth whether to approve the Texas-based lender's sale to GM.

The shareholder meeting will take place in Fort Worth to approve the sale. The deal already has the backing of two large investors that hold just over 42 percent of AmeriCredit's stock.

GM -- which has a business relationship with AmeriCredit -- is paying $24.50 per share to expand its leasing and its sales to customers with less than optimal credit.

Under AmeriCredit's bylaws, two-thirds of shareholders must vote to approve the deal. GM hopes to complete the acquisition by Dec. 31. AmeriCredit disclosed the Justice Department told the firms Aug. 13 it had no anti-trust objections to the merger.

The new filing shows six top executives at AmeriCredit stand to receive a total of more than $50 million and that AmeriCredit's chairman Clifton Morris will resign as a result of the merger.

AmeriCredit provides financing indirectly through auto dealers and has 3,000 employees in the U.S. and Canada, 800,000 customers and $9 billion in auto receivables.

Whitacre told The Detroit News last month the deal would increase sales "by a substantial amount."

"When you own somebody, you can tell them what to do," Whitacre said, saying it would boost the company's public offering. "It strengthens the IPO because it shows we have a credit organization just like Ford and Toyota."

AmeriCredit's recent filing discloses extensive details of how GM agreed to acquire it.

On May 26, Stephen Girsky, GM's vice chairman for corporate strategy and business development, told one of AmeriCredit's largest shareholders, Leucadia National Corp., that GM was potentially interested in acquiring AmeriCredit.

Girksy met with a Leucadia official on June 11 in New York at GM's offices about buying Leucadia's shares in AmeriCredit.

Five days later, AmeriCredit's Berce and other officials met with GM officials in Detroit, including Girsky and GM chief financial officer Chris Liddell.

Toward the end of the meeting, then-GM CEO Edward E. Whitacre Jr. joined the meeting, but no offer was made to AmeriCredit.

On June 23, Whitacre called Berce asking whether AmeriCredit was interested in discussing a possible acquisition of AmeriCredit by GM.

The pair agreed to talks and three days later, GM entered into a confidentiality agreement with AmeriCredit.

On June 30, the AmeriCredit team led by Berce met in Detroit with GM's team led by Girsky. At one point, Berce and Whitacre met privately to discuss the deal.

Girsky proposed a $23 per share price, while Berce said his board was unlikely to accept the offer as too low. On July 1, AmeriCredit board members said they would not support the offer.

At the same time, Leucadia -- which owns 25 percent of AmeriCredit -- originally wanted $26 per share.

The following day, Girsky upped GM's offer to $24 as long as Leucadia would agree and other conditions were met.

AmeriCredit's board considered the offer over the July 4 weekend, and asked its negotiators to ask GM for between $24 to $25 per share.

On July 6, Girsky told AmeriCredit that he would propose a $24.50 per share offer, subject to approval by GM's board.

The next day, Whitacre sent a non-binding letter of interest for $24.50 per share, provided Leucadia and another major shareholder backed the deal.

On July 8, AmeriCredit received the initial draft of the merger agreement from GM. Two outside advisers to AmeriCredit, JP Morgan Chase and Credit Suisse, eventually backed the GM offer.

On July 12, the financial advisers contacted six companies to see if any wanted to buy AmeriCredit. Ultimately, just one expressed serious interest.

The unnamed company proposed a merger of its auto finance business with AmeriCredit. The deal would give AmeriCredit shareholders cash and a minority interest in the combined entity. The cash would have been borrowed by the new firm.

On July 14, Girsky called AmeriCredit chairman Clifton Morris to say "as a result of economic and other issues related to the negotiation of the merger agreement General Motors might consider reducing its offer," AmeriCredit said in a securities filing.

Morris told Girsky he didn't think the board would consider a lower price.

On July 14, GM and AmeriCredit lawyers met in Dallas to discuss the deal. Talks broke down and GM left Dallas with no further negotiations planned.

The next day, JP Morgan and Credit Suisse pursued the deal with the unnamed company.

On July 17, GM returned to the bargaining table. GM presented a revised proposal that gave it significantly lessened deal protections for the Detroit automaker and a reduced termination fee -- from $150 million to $105 million -- and offered to AmeriCredit, among other changes, a termination right for superior proposals.

On July 20, Berce and Morris, along with board member Douglas Higgins met in Detroit with Whitacre and Girsky -- resolving the final sticking point -- settling hedged positions on AmeriCredit debt and post-merger employment arrangements for four senior AmeriCredit executives, including Berce.

The AmeriCredit board approved the deal July 21 and the companies announced the deal the following day.

Before the deal was announced, the company's stock was trading at $19.70 a share -- the sale represents a 24 percent premium. As recently as March 2009, it was trading below $3.50 a share.

To read the entire description of the deal, go to http://www.sec.gov/Archives/edgar/data/804269/000104746910007817/a2200015zdefm14a.htm

From The Detroit News: http://detnews.com/article/20100919/AUTO01/9190329/1148/AUTO01/How-GM-made-the-deal-to-buy-AmeriCredit#ixzz106aFSOV1

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