GM could make Wall Street's dreams come true with a spinoff of its Cruise self-driving unit

CruiseA Cruise Bolt.

The auto industry was rocked at the end of May when General Motors and Japan’s SoftBank announced a $US3.35 billion total investment in GM’s Cruise self-driving division, giving the unit that GM acquired as a startup in 2016 a valuation of $US11.5 billion.

GM’s own market capitalisation is just north of $US50 billion, so speculation swiftly developed around the carmaker unlocking Cruise’s worth, which has grown over tenfold since the original deal, which was valued at about $US600 million in cash with post-acquisition funding for expansion by GM bringing the deal up to $US1 billion.

Now Bloomberg, citing knowledgeable sources, says that GM might be considering a Cruise spinoff, among other strategies.

“The largest US automaker is researching possibilities including a public offering of shares, listing a separate tracking stock to reflect its value, or spinning off the unit, said the people, who asked not to be identified because the discussions are private,” Bloomberg reported.

“GM won’t make a decision until Cruise is further along in development and may not take any action for a couple of years, if at all.”

So we could be at the beginning of the beginning. But Wall Street will be rejoicing, and not just because of the prospective fees that a big investment bank might rake in for handling a Cruise offering.

Unlocking value from GM

Cruise AutomationGeneral MotorsCruise was acquired by GM in 2016.

For several years, GM share values have frustrated investors who think that a company banking over $US70 billion in profits since its own 2010 IPO should be worth more. Understandably, this has led to discussions about liberating the growth areas of GM from its legacy automotive business. Morgan Stanley analyst Adam Jonas has, at times, led this charge.

GM stock performance relative to the overall markets has also provoked activist investors to devise their own value-unlocking schemes. Greenlight Capital’s David Einhorn saw his proposal to split GM’s stock into two classes – one catering to dividend investors, the other for growth – shot down last year.

At the time, GM called Einhorn’s scheme “financial engineering” and argued that it would undermine the automaker’s investment-grade bond rating.

If GM is indeed exploring a Cruise listing or spinoff, it would represent a new turn of what has recently proved to be a successful move in the car business. Fiat Chrysler Automobiles staged an IPO of Ferrari in 2015, and the standalone supercar company is now worth $US25 billion and has returned nearly 170% since its offering.

Cruise is a different story in that it was in its infancy when GM bought it. The San Francisco-based startup is also pioneering urban self-driving systems. GM has been building the technology into all-electric Chevy Cruise vehicles and testing the technology, with the goal of a fully autonomous version to land in 2019.

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