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2022-03-21 21:34

General Motors Co. stock closed down 3.0% after the company paid $2.1 billion for the SoftBank Vision Fund 1's interest in self-driving start up Cruise LLC. It marked an exit for the Japanese investment firm from its engagement in the company and providing 80% control to the Detroit automaker.

GM to invest $1.35 billion in Cruise
Moreover, the company also announced on Friday that it will invest another $1.35 billion in Cruise, making up for the $1 billion that SoftBank had promised to invest in the firm once it deploys vehicles in a ride-sharing business, which it is planning to do. After GM made it public Vogt tweeted:

“Why not just go public? It’s a major distraction, especially right now. Cruise just launched a driverless ride hail service in SF, and we want 100% of our energy focused on scaling up and delighting our customers.”

The transaction consolidates GM's ownership and management of Cruise, and also nullifies former CEO Dan Ammann's capital diversification strategy, which included pushing for an initial public offering, which he was dismissed for in December. An IPO isn't in the works right now, according to GM CEO Mary Barra and Cruise founder Kyle Vogt, who took over as CEO after Ammann's departure.

The transaction represents a significant return on SoftBank's nearly four-year investment. In May 2018, the fund invested $2.25 billion in Cruise for an 11 percent stake. The first $900 million was to be paid out right away, with the remaining $1.35 billion to be paid out once the vehicles were ready for commercialization. Following that, SoftBank invested an additional $300 million in investment.

SoftBank's second investment requirement was prompted when Cruise began delivering free rides to the people without a safety driver in late January, according to GM's fourth-quarter earnings call. The investment was not made by SoftBank, and GM bought out its stake.

How selling stake in Cruise will help SoftBank?
SoftBank Group, like many other investors, is seeing the value of public equities and early-stage private enterprises decline. As its loan-to-value ratio climbs and SoftBank founder Masayoshi Son's fortune sinks, the company has borrowed against some of its investments to make more bets on startups, causing issues for the company. The Cruise sale will aid in the re-establishment of some equilibrium.

Furthermore, GM Cruise has other outside stakeholders who own a combined 20% of the company. Honda Motor Co., which is assisting General Motors in the development of the Cruise Origin driverless car, Microsoft Corp., Walmart Inc., and T. Rowe Price Group Inc. are among them.

The stock that trades at a PE multiple of 6.51 is down more than 25% for the year. General Motors has a market cap of $63.37 billion at present.