Last week, General Motors (NYSE:GM) announced it acquired SoftBank's equity ownership stake in GM Cruise for $2.1 billion. In addition, GM will invest $1.35 billion in Cruise instead of SoftBank.
GM now owns roughly 80% of Cruise, while SoftBank is no longer a shareholder. The transaction values Cruise at around $30 billion, lower compared to the last funding that valued the startup above $30 billion.
The remaining 20% is held by employees and other investors, which include T. Rowe Price, Honda, Microsoft (NASDAQ:MSFT), and Walmart (NYSE:WMT).
Here are 3 analysts discussing GM's decision to increase its stake in the autonomous vehicle (AV) business.
Wolfes Rod Lache (Outperform, $70): Until now, GM's options for retaining control and exclusivity of Cruise were somewhat limited. GM reset the table by buying out Softbank (OTC:SFTBY)'s stake, which will ultimately raise GM's stake in Cruise to >80%. We're also raising our GM target to $70 from $67.
Credit Suisse (SIX:CSGN)'s Dan Levy (Outperform, $75): While the valuation was a negative (implying a down round for Cruise), and some might cite concerns of reduced independence of Cruise, we nevertheless focus on two positives: 1. The deal further ties Cruise to GM, creating a stronger case for operational synergies; 2. The tendering program + removal of IPO/liquidity vesting condition can help in talent attraction/retention. As it relates to GM stock, while investors likely are discounting AV valuations, we nevertheless believe the stronger tie to Cruise can eventually be a key long-term value creator.
Wells Fargo (NYSE:WFC)'s Colin Langan (Overweight, $83): The low Cruise valuation partially reflects SoftBank's desire to sell assets to improve its credit profile. GM was the most logical buyer with enough funds to execute the transaction quickly. On the other hand, the transaction is another sign that a Cruise IPO is not imminent. More importantly, the low valuation will likely raise concerns that Cruise is not worth the $30B value implied by the prior funding round. Cruise's market value is likely mid the two numbers. The $30B is likely lower, as investor interest in growth has moderated. And SoftBank likely accepted some discount to liquidate its position quickly. While GM traded up slightly post announcement, we expect the stock may end up trading down slightly on the low Cruise price.
By Senad Karaahmetovic