Delphi gears up for $10bn float on NYSE

FLOTATIONS worth $10bn are rare in any sector, especially in the automobile industry where overcapacity has prompted consolidation in the form of mergers such the DaimlerChrysler and BMW-Rover deals. On Friday, however, the New York Stock Exchange will welcome almost 500 million new shares in Delphi Automotive Systems when General Motors spins off its 82 per cent stake in the company.

Delphi's independence is the first step in making the company a household name in consumer electronics worldwide. But Delphi's directors are concerned that the near-sixfold increase in Delphi shares at issue will cause its present $20.50 share price to crumble.

Delphi, the world's largest automotive components maker and the US's 36th largest company, was wholly owned by General Motors until February, when an 18 per cent stake came to the market via initial public offering. On Friday General Motors shareholders will receive a share certificate allocating them a holding in Delphi on a 0.7-for-1 basis.

Delphi's management has visited more than 130 institutions in a bid to prevent them immediately selling the new shares on the market for fear of owning an unknown quantity. Hans Weiser, Delphi's European President, says the tour has been educational. "Delphi was not a player in the financial community - we had GM to do all that."

The aim of the spin-off is to create value for GM shareholders by making the fast-growing components business more transparent. Delphi's smaller quoted components rival. Lear International. trades on a p/e of 16, way ahead of GM's 8.6.

Delphi, whose sales were $28.5bn last year, aims to acquire a distribution network in Europe to build its relatively weak consumer brands such as Diavia, an in-car air-conditioning business and de Carvron, a shock absorber specialist. It claims to have $3bn of banking finance to fund an attack on the European after-sales market, aimed at making Delphi an engineering brand of the stature of its nearest rival, Bosch, whose sales were $18.2bn last year. The brand-building exercise is already under way, with an ad campaign launched in the US. In the meantime, Delphi will exploit its escape from the clutches of the world's largest company - GM's only interest in Delphi will be a holding by its pension fund - to raise orders for its automotive industry business from other motor manufacturers. It hopes to boost the proportion of group sales to companies other than GM from 20 to at least 50 per cent.

Delphi plans to list on a European exchange within two years. It is tight- lipped about the possibility of coming to London. "Our European headquarters are in Paris. But a lot of British people hold shares in General Motors so a London-listing would have attractions," says a spokesman.

Delphi's expertise is in electronics systems for cars designed to replace existing mechanical technologies. Its systems include an electronic steering system based around sensors and motors which turn wheels without the need for a traditional steering column. The system has met with resistance in the marketplace, however, because of consumer fears over the reliability of microprocessors.