DETROIT (Reuters) - Shares of General Motors Corp jumped almost 18 percent on Monday after reports the No. 1 U.S. automaker had been in merger talks in recent weeks with smaller rivals Ford Motor Co and Chrysler LLC.
Analysts were skeptical that GM could achieve substantial savings from a merger.
But a deal with Chrysler might allow the top U.S. automaker to boost its cash holdings, reassure consumers that it was not going out of business and give it bargaining power to seek new concessions from the United Auto Workers union, they said.
Shares of GM, which had traded near 60-year lows last week, jumped to $5.75 in pre-market trade on Monday, up from a close of $4.89 on Friday. The gains came amid a rebound in the broad market tied to steps by the U.S. government and others to stabilize the banking system.
GM and Cerberus Capital Management have had discussions about a deal that would combine the No. 1 and No. 3 U.S. automakers, people familiar with the talks said over the weekend.
Those talks hit a snag over the question of how to value Chrysler, the sources said. Cerberus bought an 80 percent stake in the automaker for about $7.4 billion from Daimler AG in 2007, but auto sales have dropped sharply since.
In addition, GM and Ford had earlier talks about a potential merger with the No. 2 U.S. automaker but those discussions broke off without nearing a deal, according to a person familiar with those talks.
JP Morgan analyst Himanshu Patel said the benefits for GM would be greater from a deal with Ford, but said there could also be some gains from a merger with Chrysler.
Cerberus had proposed swapping Chrysler's auto operations for the 49 percent in finance company GMAC still owned by GM. The private equity firm already owns 51 percent of GMAC after it bought the stake from the automaker in 2006.
Patel said GM's stake in GMAC could be worth $3 billion, while Chrysler's auto business "is arguably nearly worthless on a stand-alone basis."
If GM were paid $3 billion in a swap with Cerberus and GM got access to the estimated $10 billion remaining on Chrysler's books, it could mean a boost in liquidity, for GM.
GM has ruled out a bankruptcy filing but faces scrutiny from investors and creditors over its ability to ride out a downturn in auto sales that began in the United States and is now spilling over to Europe and Asia.
"If GM is deemed to be 'saving' Chrysler, GM's leverage with the UAW could rise considerably," Patel said.
The automaker could use that influence to press its major union for new concessions on retiree health care and lower wages for new hires, he said.
Calyon Securities analyst Mark Warnsman said the winners from any deal to combine GM and Chrysler could be suppliers rather than the merged auto companies.
"We are skeptical of major incremental savings resulting from a combination," Warnsman said.
GM might benefit from an acquisition of Chrysler if the deal helped to reassure U.S. consumers about the staying power of its brands.
"The greatest near-term risk to GM, in our view, is that consumers stop buying its products for lack of confidence in, among other things, the warranties behind the vehicles," he said. "By joining with Chrysler, GM could reinforce its market-leading position in the U.S., potentially reducing the risk of lost consumer confidence."
But Warnsman said a combined GM-Chrysler would also "help dissipate the cloud that presently hangs over even the healthiest North American suppliers."
Warnsman said Johnson Controls Inc and Gentex Corp could benefit from a merger of Chrysler and GM.
(Reporting by Kevin Krolicki; Editing by Maureen Bavdek, Dave Zimmerman)
