Delphi gets $3.4B, new CEO

NEW YORK (CNNMoney.com) -- Bankrupt auto parts maker Delphi is getting a $3.4 billion cash infusion from a group of private equity investors, as well as a new CEO, a sign that the largest parts maker may be close to a conclusion of its 14-month bankruptcy case.

The deal announced Monday is contingent upon the former General Motors (Charts) parts unit reaching a new labor deal with the United Auto Workers union by Jan. 31.

Talks between the UAW, Delphi (Charts) and GM have been going on more than a year. The Jan. 31 deadline is a slightly more aggressive time frame than the end of the first quarter target for a deal given by GM Chief Financial Officer Fritz Henderson in a speech last week.

But auto industry expert David Cole, the chairman of the Center for Automotive Research, said he thinks the sides are close enough to be able to meet the Jan. 31 deadline.

"What this really says to me is that GM, Delphi, the unions and the financial community have the framework of an agreement in place," said Cole. "I don't think anyone would have put a deadline in place if there was an issue that was not resolvable."

GM issued a statement Monday that said "Although we are encouraged by the progress of the negotiations between GM, Delphi and the other stakeholders thus far, we recognize that there are still a number of matters to be resolved and a lot more work is yet to be completed. GM remains committed to working with Delphi, its unions and other stakeholders to reach a mutually agreed resolution."

The UAW issued a statement Monday afternoon that cited the negotiating deadline in the Delphi announcement and said, "This reinforces a simple fact that we have made clear from the beginning of this process: Our membership will be heard." It did not comment on how close the union is to a deal with Delphi or on the change in leadership at the parts maker.

Rodney O'Neal will be appointed CEO and president of the reorganized Delphi, with plans to implement the new plan no later than Jan 1. He has been president and chief operating officer of Delphi.

Steve Miller, who has been CEO of Delphi, has been the focus of harsh union criticism as negotiations dragged on more than a year. He will remain as chairman of the Delphi under the reorganization.

Cole said he's not surprised that Miller is giving up the CEO spot as part of this latest step in the reorganization plan.

"The reason they brought him in is he had experience in this type of bankruptcy thing, and he could be the lightning rod so it (employee anger) wouldn't taint the management team," said Cole. "That was the right thing to do."

Cole said that the Delphi that will emerge from bankruptcy will be a far more competitive and attractive property than the former GM unit with high labor costs that went bankrupt in October 2005.

He said that Delphi has already removed most of the high-cost hourly workers through buyouts and so-called "flow backs" through which they return to a GM plant to take an open position there.

Delphi spokesman Linsey Williams said there were 33,000 hourly workers when the company filed bankruptcy, almost all of them with expensive pay and benefit packages. Today there are about 27,000, and a majority have lower-cost pay and benefit packages.

Cole estimates that there will only be a few thousand of the higher cost hourly employees by early next year, and that number will drop down to a "virtually" zero within a year or two. Williams could not give the company's estimate for that number, but he agreed that many of the higher cost employees still with Delphi today will be gone by September of next year.

The cash infusion will come from Appaloosa Management L.P., Cerberus Capital Management L.P., and Harbinger Capital Partners Master Fund I Ltd., as well as Merrill Lynch & Co. (Charts) and UBS Securities LLC.

The company also announced $4.5 billion in new financing agreements with JPMorgan Chase (Charts) and a group of lenders

Cerberus also led the group that bought a majority stake in GMAC, the finance unit of GM.

O'Neal is a relative of Merrill Lynch Chairman and CEO Stanley O'Neal. Delphi spokesman Williams says Merrill's investment in the deal will likely be a bit more than $50 million, although that is subject to change in the upcoming negotiations. Cole said he doubts the relationship between the two O'Neals will cause any problem for Merrill's investment.

"Any type of deal like this has to pass muster with the bankruptcy court so it's not viewed as a sweetheart deal," said Cole. "They'll be very careful with this."

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