December 31, 2006

Delphi in Tussle Between Funds

-- By Pushpa Sathish, Staff Writer

It could well heat up to become the battle of the hedge funds, with Delphi being the spoils, and it could well have an outcome that even an oracle couldn’t predict with accuracy. The auto parts manufacturer which formerly belonged to General Motors is in the middle of a tug of war between Highland Capital Management and a group comprising Appaloosa Management, Cerberus Capital Management, Harbinger Capital Partners Master Fund I, Merrill Lynch and UBS Securities.

Highland, which is the second-largest shareholder in the ailing company, is protesting the $3.4 billion deal struck with the consortium, on the grounds that it will allow the group an advantage over current equity holders in stocks and convertible preferred securities. In addition to this, the Appaloosa-Cerberus group would gain control over the board through its right to nominate six of the total twelve directors, including the chairman.

The hedge fund is countering the offer with one of its own – a $4.7 billion pact that will allow it to buy any unsubscribed shares for a fee of 2.5 percent. Highland will accordingly file a petition against the consortium’s deal on Jan 2, three days ahead of the Delphi hearing at the U.S. bankruptcy court of the Southern District of New York and the Securities and Exchange Commission.

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