Interview: Fifth Third Asset Management---Mikelic, Mirko---Sr. Portfolio Manager
>> welcome back to “after the bell.” bonds of general motor’s finance unit gmac gained today after rick wagner said there’s been “ample interest in buying a majority stake in the division.” how smoothly will a sale go and how much could a stake be worth? joining us to answer this question is senior portfolio management at fifth third asset manager in grand rapids, michigan. welcome.
>> thank you for having me on the program.
>> who do you think a bidder might be for gmac, who would make a lot of good sense?
>> probably g.e. commercial finance, probably the most likely bidder.
>> why do you say that?
>> a lot of banks have not expressed interest because they would have to put max debt on their balance sheet and they’re not inclined to do that. there could be a private equity consortium as well.
>> what do you think a fair price would be?
>> any price where they get around $10 billion or higher. so a lot of people are talking between the 10 and $15 billion range. if they get 10 or higher, that’s probably a good stake of cash for them for g.m.
>> what is the likelihood we see a bidding war break out for gmac?
>> i don’t think there’s going to be one. it’s a complex transaction. the mortgage and insurance business, that’s easy to spin off, no problems there. but the auto finance business is a little trickier and how are you going to deal with the divedenledses that go back to g.m.? there’s still issues to be worked out and a lot of details in the transaction. so it’s not a straightforward split up the company and move on.
>> is it likely that those three divisions could be picked up by different buyers?
>> it’s a possibility. there’s a lot of analysts that would not like that, but it could come down to that.
>> when do you think we’ll hear details in the gmac sale?
>> we’ll probably start hearing about the different types of bidders probably either the end of this year or the beginning of next year.
>> regarding the bond, gmac is carrying four times the outstanding debt that g.m. is, so losing gmac has to be a huge weight lifted from g.m., but how much could this help g.m.?
>> well, gmac provides the profits for g.m. at this point in time. so it’s not necessarily a great thing for g.m. they would like to hold onto gmac, but they need the cash in the event the u.a.w. strikes and forces g.m.’s plants to close down. so i think for them to have the cash on hand is more important than having―holding a stake in gmac.
>> wagner is saying that g.m. will have improved revenues next year. he’s pointing a―putting a lot of emphasis on this redesigned chevy tahoe, but how much of the $3.8 billion in losses can a new s.u.v. make up, in your view?
>> first of all, there’s no one silver bullet that’s going to save g.m., particularly one particular vehicle or line. they need a much better product mix. right now, their focus is on the large s.u.v.’s and sales there have been declining presiptously this year. and they’re likely to continue next year.
>> you know, i want to talk about gmac’s bonds. what are the chances that gmac gets a credit upgrade or back to investment grade after being sold?
>> strong possibility. especially if it’s like a g.e. that buys them. their bonds will probably go up to probably a single a level, helping out their financing cost. right now as a junk credit that’s hurting them on the financing side.
>> gmac right now has obviously a better credit rating than g.m., but s&p said they might have to link the two if g.m. can’t sell gmac. so what is the possibility of that happening?
>> i mean, it’s still out there. if there’s problems with the sale, and i think the bidders know that the longer they hold out and the longer―the more problems that they find in splitting up the company and this controlling interest, i think the price will go down and help them on out. so if g.m. needs somewhere in the order of $10 billion to consider this a success.
>> and gmac bonds rose today on this announcement. do you see continued buying of gmac bonds?
>> well, i mean, it’s still a very risky proposition and there’s still a lot up in the air in terms of what needs to be done. and if it’s not done, the bonds are going to drop down to a single b level. so it’s a risky proposition to be buying those bonds at this point in time. however, it looks like the sale is going on and it will probably go forward with the sale, g.m. will.
>> ok.
>> all right.
>> that’s a great place to leave it. thanks a lot.
>> thank you.
>> once again, senior portfolio manager at fifth thirds asset management. there’s still much more ahead. johnson and johnson acquiring animas for $518 million. shareholders are to be paid $25.5 per share, which is a 35% premium to yesterday’s closing price. the transaction further expands it to the biggest medical device makers. oil prices fell for a third day. what’s ahead for energy? we’ll have a look when we return.
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Listen Market briefing --- Lori (slow)
Nasdaq --- Robert (slow)
NYSE --- Deb (fast)
G.M. --- June (slow)
>> after hearing a non-jury trial in delaware that ended in december of 2004. and by reading his post trial brief. lipitor with $10.9 billion in global sales last year, accounted for about 20% of the $50.5 billion total sales for pfizer. the other big story of the day, time warner’s america online has ended softs with microsoft about forming an internet advertising venture. this smooths the way for a deal with google. time warner told microsoft it will not pursue discussions. an agreement between a.o.l. and google would be a blow to microsoft, which initiated discussions with a.o.l. in january, eight months before google. google would retain a.o.l. as its largest glinalts and wage a better challenge to yahoo. also today, energy was a story. crude oil, heating oil, natural gas all fell on forecasts showing warmer weather across the northern united states. that would reduce demand for heating fuel. tat close, oil ending down $1.93 to $58.06. checking closing prices on other commodities this friday. gasoline was down nearly three points. heating oil off about 3%. natural gas futures below $14 per b.t.u. let’s show you the charts for the indexes today, all closing slightly lower. quadruple witching friday, so some volatilty in the last trading hour. all three close lower and close to the lows of the session. for the week, the dow and the s&p do close higher. this is the first winning week in three for the broad markets but the nasdaq did lose this week. google shares rose for a record friday as it moved closer to a partnership with time warner’s a.o.l. robert gray has details on today’s nasdaq trading from the nasdaq market site in times square.
>> google shares began moving higher, rising to a new record during friday’s session. this as a person familiar with the matter saying that google closer to an internet advertising venture with time warner’s a.o.l. that person saying that a.o.l. has ended talks with microsoft. of course, it would be a blow to microsoft and a boom for google. google entering the nasdaq 100 at the close of regular trading, becoming one of the 12 new members for the nasdaq 100 for the rebalancing. this taking effect on monday. we also saw adone systems one of the best performers friday, the world’s biggest maker of graphic design software, rising on earnings and fiscal first quarter outlook for profit and forecast exceeding the average analyst estimates for both. as far as weighing on the nasdaq, we saw oracle falling, investors with its license revenue for a second consecutive quarter and also on its profit forecast for its fiscal third quarter. the nasdaq lower in friday’s session and falling for a second consecutive week, falling some―just about 1/10th of 1% for the week. also, weakness in the satellite radio group. and also serious satellite radio downgraded to an underweight from a neutral. also an i.p.o. ex-chance, the number two maker of cell phone memory had to slice the price of that i.p.o. twice, though it closed above the offering price of 12ds a share. at the nasdaq, i’m robert gray.
>> and as usual, deborah has a wrap up in new york.
>> markets were little changed on this quadruple witching day, meaning the expiration of futures and options on stock indexes and the expiration on individual stocks all expiring today. volume above average, well over two billion shares that we saw in today’s session. but if you compare that to the last quadruple witching on september 16, we had over 2.5 billion shares being traded, the busiest day in three years at the new york stock exchange. crude oil settling at its lowest price since november 30 at $58.03 a barrel. we saw crude oil going from $61 to $58. it wasn’t just crude oil, it was also heating oil and natural gas, all falling on forecasts showing that warmer weather will be moving across the u.s. and of course, traders wondering a little bit if crude oiling with driven by the weather market and not by demand. one thing we saw this week, a lot of dealing in the energy industry with conoco buying burlington resources and southern union, a distributor of natural gas in 17 states. they agreed to buy a pipeline from texas for $1.6 billion. and goldman sachs was down 2.2%. they released earnings, coming in line with expectations, and goldman sachs and bear stearns saying their fourth quarter reached all-time highs. however, in today’s session, the story with goldman sachs was lower after burnstein downgraded goldman for the first time in four years, this on concern about fixed income revenue may fall next year. johnson&johnson agreeing to acquire animas corporation. i’m deborah coss tranat the new york stock exchange for bloomberg news.
>> more news out of the stock exchange, word that a seat on the exchange sold for $3.27 million, down $350,000 from the last sale on december 14. meanwhile, the exchange posted the auction of trading licenses by two weeks. the move comes in response to questions from brokers about the big board’s plan to sell rights to trade on the exchange floor. the auction will be held january 4 and bids are due a day earlier. g.m.’s chief executive say they have offers for its stake in its finance unit. we have more on the world’s largest auto maker and its plan. june?
>> some of the nation’s biggest thanks declined to bid when wagner first put the majority of g.m.’s acceptance corps on the block in october. but wagner says there’s ample interest in the unit. john novek says g.m.’s back is against the wall.
>> it’s true that it’s been a profitable unit, however they have no choice at this stage. gmac’s credit rating has been badly damaged as a result of their troubles and it’s only going to get worse. for them to remain competitive with other financial institutions, they need an investment grade credit rating and the only way is to separate the two entities.
>> wagner said that a sale will help lower the cost of loans as g.m. struggles to stop loss of $3.9 billion over the past four quarters. u.s. auto sales fell 7% in those quarters. g.m. will close plants, eliminating 30,000 union jobs and reducing health care costs. bonds went to a seven-week low last week, on signs they were having trouble finding a buyer. but those bonds gained after wagner said he’s confident they can find a buyer.
>> i think there’s likely to be a large number of bids from a wide range of structures, ranging from big banks and commercial finance companies such as g.e., perhaps citigroup to private equity firms who might choose to partner with smaller banks.
>> g.m. expects revenue to improve next year after speeding up the creation of s.u.v.’s and pickup trucks. they accelerated the launch of the 2007 chevrolet tahoe. wagner said g.m. will incyst on a gmac buyer to support the car and truck sales and that the sale will not necessarily go to the highest bidder. back to you, lori.
>> june, thanks a lot for that. we’ll continue to follow the g.m. story as c.e.o. wagner says he’s received bids for the company’s finance unit. we’ll get more on what that could mean and what kind of price tag might be attached. our next guest is a fifth third asset manager.
