Appaloosa On The Auto-Parts March

Jul 19 2007 | 12:13pm ET

New Jersey hedge fund Appaloosa Management’s involvement in the troubled auto parts industry has it in the throes of agony and ecstasy.

Just a day after besting fellow hedge fund Highland Capital Management with a $2.55 billion bid for Delphi Corp., the fund, run by David Tepper, sent a blistering letter to Dana Corp., accusing that company of impeding its efforts to put together a deal to rival that of private equity firm Centerbridge Capital Partners.

In the letter to Dana’s board of directors, Appaloosa, the largest shareholder of Toledo, Ohio-based Dana with a 15% stake, called the $750 million deal with Centerbridge “absurd and one-sided,” and warned it “will yield far less than the maximum recoveries available to stakeholders.”

Dana accepted Centerbridge’s offer two weeks ago, which includes deals with two unions regarding health and pension benefits.

But Appaloosa, which also claims to be a major owner of Dana debt, says company “management and advisors continue to resist our efforts to obtain” information to create an alternative to the Centerbridge deal. Dana, currently in Chapter 11 bankruptcy protection, faces a Sept. 3 deadline to file a reorganization plan, after which investors, such as, say, Appaloosa, would be free to file their own plans.

“To date, management has conditioned our access to information upon us agreeing to give up inherent rights of a stakeholder, including our right to make a proposal without management’s prior approval, and has ceded to Centerbridge material decision-making authority regarding the terms of access to information,” Appaloosa charged in its letter, a copy of which was sent to the Securities and Exchange Commission.

“The efforts of management and its advisors in concert with Centerbridge to exclude interested investors from the process will inevitably ensure that no alternative competitive proposals ever materialize.”

That said, an Appaloosa plan has, in fact, materialized, which mimic’s Centerbridge’s proposed $750 million equity investment and adds a $1.5 billion credit facility and an unspecified amount of unsecured notes in exit financing.

Appaloosa is enjoying notably better success in its dealings with another Chapter 11 case. Troy, Mich.-based Delphi Corp. yesterday accepted its revised equity investment plan a day after rejecting a nominally richer bid from San Francisco-based Highland. Appaloosa was forced to rejigger its offer, which won court approval in January, after p.e. giant Cerberus Capital Management dropped out of the group. The newly-configured group includes Harbinger Capital Partners, Pardus Capital Management, Merrill Lynch, Pierce Fenner & Smith, UBS Securities and Goldman Sachs.

The Appaloosa group has agreed to invest as much as $2.55 billion in Delphi, in exchange for preferred and common stock. The Highland proposal had offered a $3.3 billion investment, but demanded convertible preferred stock and backstopping rights.

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