GM to Acquire AmeriCredit; Revisiting Berkowitz’s Bullish Thesis

Published on July 22, 2010

General Motors has announced an all cash transaction to purchase AmeriCredit for $3.5 billion.  AmeriCredit is an automobile financing company that was founded in 1992 and has particular expertise in non-prime lending.  GM has lacked an in house financing unit since 2006 when it divested General Motors Acceptance Corporation (GMAC) which has since been rebranded as Ally Financial.  Having a “captive” financing unit will allow GM to provide credit to customers who find it difficult to qualify for loans due to subpar credit.  Once the acquisition is complete, AmeriCredit will also enter the leasing business which should further expand opportunities for GM to attract customers.

Under the terms of the transaction, GM will pay $24.50 per share in cash which represents a 24 percent premium to AmeriCredit’s closing price yesterday.

AmeriCredit has been a favorite investment of several value fund managers in recent years.  According to the latest S.E.C. filing on May 10, Bruce Berkowitz’s Fairholme Funds owned 28.1 million shares, or 21 percent of outstanding shares.  Leucadia National Corporation owned 33.9 million shares, or 25 percent of the company, as of March 31.  Here is what Bruce Berkowitz had to say about AmeriCredit in a Barron’s interview (pdf) on March 29, 2010:

Q: What was it that got you interested in AmeriCredit, a finance company specializing in auto loans?

A: We were buyers of the equity and the bonds. Then we did a securitization with AmeriCredit when the markets were locked. We helped to deleverage them by exchanging some of our bonds for new equity. And the company has turned the corner; it is growing and it is doing quite well.

But prior to that, people were worried that maybe the company wouldn’t survive. Management there was smart, and that’s why we bought stock — because they understood how to get through a difficult environment.

When you are a leveraged entity in tough economic times – whether it’s a bank or a broker or an auto lender or a rental car company – you have to shrink. When you shrink, the money starts coming in the door faster than it is going out the door. You don’t bleed to death, and you get to fight another day. And those companies that did not recognize the need to cut down on expenses and to lower volumes during the most difficult of times are still in a pickle – or they did not survive.

Based on positions reported to the S.E.C. at the end of the first quarter, AmeriCredit was Fairholme Fund’s second largest position, although some shares were sold based on the May 10 filing.  To view the rest of Fairholme’s positions, click on this link for an interactive summary on

It is worth noting that two of Mr. Berkowitz’s other major positions have encountered selling pressure in recent weeks.  Sears Holdings has fallen by nearly fifty percent from recent highs and St. Joe has declined due to fears over the potential impact of the Gulf oil spill on the company’s beachfront property in Florida.

Disclosure:  No position in AmeriCredit, Sears Holdings, or St. Joe.

GM to Acquire AmeriCredit; Revisiting Berkowitz’s Bullish Thesis
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