GM CUT SUZUKI STAKE TO 3%
March 6 2006.
Financially struggling General Motors Corp. (GM) took another step toward streamlining its sprawling global empire with the sale of a 17.4% stake in Suzuki Motor Corp.  officials from the two companies said in Tokyo.
After the sale of the stake, which GM officials said was valued at roughly $2 billion, GM will retain a modest 3% share of Suzuki's outstanding stock. Suzuki, meantime, will retain an 11% interest in GM Daewoo Automotive & Technology Co. Both companies stressed that the two sides would maintain all areas of cooperation despite the reduction of GM's stake.
GM is reducing its stake from its current holding of 20.4%. GM Asia Pacific President Troy A. Clarke said that while GM has a "great deal of respect" for Suzuki, the struggling U.S. car maker was moving to boost cash reserves and liquidity after recording a $8.6 billion loss for 2005. GM seeks to "enhance the strength of the balance sheet," Clarke said.
For Suzuki, GM's move is a setback. The Japanese car maker will buy roughly 92 million of its own shares currently held by GM through a share repurchase program. But that will mean added costs just a few months after Suzuki launched a major, costly expansion program in plant and production capacity.
Analysts have warned that a GM sale will put pressure on Suzuki's stock price, which has performed strongly in recent years thanks to particularly robust sales growth in hot developing markets like India.
Suzuki said that it would retain the stocks it buys from GM for up to a year in case GM has a change of heart. "If they (GM) want to buy back shares, we will be waiting," said 76-year-old Chairman Osamu Suzuki, a member of the founding family.
The two companies had separate explanations for why they settled on GM's retaining 3% of the shares. GM's Clarke said 3% was appropriate because it brought the size of its stake in Suzuki roughly in line with what GM held in the Japanese automaker for years in the 1980s and 1990s, when its stake fluctuated in the low single digits.
Officials at Suzuki said they asked GM to retain a stake that is roughly equivalent to the portion of Suzuki sales that comes from doing business with GM.

Source: Nikkie Net