It’s hard to call a 2,000+ word article a “nutshell” but it’s a lot less than the original at 7,000 words. If you want the one paragraph Swade-view nutshell, here it is:
Spyker/Saab claim that GM gave indications they were willing to accept a Chinese solution to Saab’s financial problems early in the piece. They even steered them towards it to some degree, only to perform what Spyker/Saab see as a game-changing backflip with GM’s 100% refusal to accept propositions made to them involving Youngman and Pang Da. GM’s attitude was so aggressively negative that it was THE factor that scared Youngman away from deal that should have been executable (one where there were built-in protections for GM’s interests) at the final hour.
The bigger nutshell is below.
There are 152 numbered points in the submission made by Spyker to the District Court in the Eastern District, in Michigan yesterday. These form the basis of Spyker’s lawsuit against General Motors following the bankruptcy of Saab Automobile in December 2011.
Of those 152 points, about 20 of them are crucial to the case, as I see it. The rest provide some color and context. Let’s have a look at the whole thing, section by section, figuring out the important parts as we go.
Parties (points 3 to 13)
The plaintiffs are Saab Automobile AB and Spyker Cars NV. The defendant is General Motors.
It’s not included in these points, but the lawsuit has been prepared by Spyker by agreement with Saab. Spyker has secured what it sees to be sufficient funding from an unnamed third party to see the suit through to conclusion and in an article on AFP, Victor Muller stated that Spyker would retain around 90% of the proceeds if they are successful (with a share going to the anonymous funder, of course).
Points 3 to 13 merely establish the corporate cast in this drama and their background in the ownership of Saab, which was established in 1947, purchased 50% by GM in 1990 and 100% in 2000 before being sold to Spyker in February 2010.
One important bit:
9. On February 23, 2010, Spyker finalized a deal with GM to purchase Saab. Through the transaction, Spyker contributed $74 million in cash, and the European Investment Bank provided a €400 million loan guaranteed by the Swedish government. As a result of the transaction, Spyker acquired a majority interest in Saab, and GM retained a minority interest through preferred shares valued in January 2010 at approximately $326 million. GM’s minority interest represented just 0.000005% of shareholder voting power.
Relevant non-parties (points 14 to 25)
These points introduce the individual persons that were most important in speaking for their companies during the period in question. Identities from Saab/Spyker, GM, Hawtai, Pang Da and Youngman are introduced here.
One important bit:
19. David Xu is a representative of Tempo Holding, a major Chinese automobile manufacturer, parts supplier, and investment company. During the March 2011 International Motor Show in Geneva, Switzerland, Messrs. Girsky and Muller met to discuss problems that Saab was experiencing in making certain payments to GM, which could lead to a production stoppage. As a result of that discussion, Mr. Girsky offered to introduce Mr. Muller to Mr. Xu and, in fact, made that introduction via email on March 1, 2011.
That’s GM actively introducing Victor Muller to a Chinese supplier/investment company as a result of discussions held with regard to Saab’s difficulty in paying GM. In light of the allegations to come, I thought that bit was interesting.
This is the bit where Spyker/Saab spell out their case under a number of subheadings. It starts with context and becomes more and more pointed as we get closer to events relating directly to December 2011.
General Motors Seeks to Dominate the Chinese Automobile Market (points 26 to 39)
General information about how the Chinese market is growing in the global context and is becoming a crucial market specifically for GM.
A quote from GM’s latest Form 10-K is telling:
If we are unable to maintain our position in the Chinese market or if vehicle sales in China decrease or do not continue to increase, our business and financial results could be materially adversely affected.
Spyker spells out some sales figures for GM in China (over 1.2 million for Shanghai GM) and juxtaposes its own expectations for Saab sales in China, which were forecasted to be between just 2,000 and 5,000 per year over the first few years of their presence.
My take is that they are establishing the importance of the Chinese market to GM as well as highlighting that fact that Saab were never a threat to GM’s position in China in terms of market share. Point 39 reinforces the first bit:
39. Given the highly competitive climate in the Chinese automobile market, GM has strong incentive to limit its competition wherever possible.
Saab Automobiles (points 40 to 52)
This section provides background into Saab’s range and the conditions under which it was manufactured.
One important bit:
48. GM owns the rights to the GM platforms on which the Saab 9-3, 9-4X, 9-5, and 9-7X were built. As set forth in more detail below, Saab had a limited, non-exclusive license to use the necessary GM platforms for the manufacture of these models.
Another important bit:
50. At the March 2011 International Motor Show in Geneva, Saab premiered the Saab PhoeniX, which was based on Saab’s PhoeniX platform. GM owns no rights in Saab’s PhoeniX platform.
Saab were looking to get away from needing GM’s technology and were doing so as quickly as possible. They intended to launch a new 9-3 based on PhoeniX technology for the 2013 model year (manufacturing for that one would be happening right about now if things had worked out differently).
General Motors Sells Saab to Spyker (points 53 to 70)
This section talks about the conditions that gave rise to GM’s sale of Saab to Spyker, prominent among them being GM’s own bankruptcy proceedings in 2009 under US law. This section also establishes a couple of important acronyms:
- GTO – GM’s Global Technology Operations, the body responsible for licencing GM technology around the world.
- ATLA – The Automotive Technology Licencing Agreement, which “granted to Saab a non-exclusive, nontransferable, worldwide, royalty-free license to GM intellectual property necessary for the manufacture, assembly and service of Saab 9-5 and 9-3 models identified in exhibits to the ATLA (the “Licensed Vehicles”).”
The ATLA contained some restrictions that are important to the context of this lawsuit. Saab could seek to manufacture or assemble in China but had to get GTO approval first. If such permission was sought, GTO had the right to first offer a partner to do this work, though Saab could turn elsewhere if the GTO’s nominated partner had unfavourable commercial terms.
So, GM could allow manufacture/assembly in China under the ATLA.
Two other important bits:
68. At no time did GM have a right to approve or disapprove of any business transaction to license or sell exclusively Saab-developed and owned intellectual property, including the PhoeniX platform.
69. At all times relevant, GM knew that it did not own or have any rights in the PhoeniX platform or other Saab-developed and owned intellectual property.
Saab Experiences Financial Difficulties (points 71 to 86)
This section describes the various conditions that led to Saab’s financial difficulties through 2010 and 2011.
- GM’s voluntary liquidation of Saab just prior to Spyker’s purchase of the company in early 2010
- The need to re-invigorate sales channels and top-up a global short supply of Saab vehicles
- These were primary contributors to lower-than-expected sales
- Saab’s precarious financial position was accentuated by heavy investment in product launches (9-5 and 9-4x) and future product investment
That’s not an exhaustive list, by any means. It’s also Spyker’s perspective. There are other lights that could be shone on this, which I’m sure GM will seek to do.
However, these primary contributors all led to Saab’s cash shortage, which led to Saab’s transport company refusing to deliver to the factory – the single initial domino that fell and set off a trail of dominos that led to the bankruptcy of Saab in December 2011.
Points 79 to 86 cover initial attempts to secure funding and the various road blocks that appeared at this time. Victor Muller tries several different ways to secure investment, including courting Chinese investment, and point 84 is provided as an example of Spyker’s efforts to keep GM informed of this at things progressed.
It’s important to note, once again, that GM were aware of Saab’s financial difficulties as they were one of Saab’s suppliers and weren’t getting paid. In discussions regarding this, a GM representative introduced Victor Muller to a potential Chinese investor (David Xu) during the Geneva Motor Show in March 2011. This is highlighted in point 83.
Perhaps GM were miffed that Saab didn’t use their recommended Chinese investor?
The important conclusion from Spyker is at point 86:
GM created the appearance of initially encouraging Saab to enter into a deal with Chinese investors to save the company, only later to unlawfully pull the rug out from under Saab, driving it into bankruptcy liquidation. Indeed, it was GM’s intent by whatever means necessary to quash any financing or investment deal that could save Saab from liquidation, because GM simply sought to eliminate Saab from competition, particularly in the Chinese automobile market.
Efforts to Restructure Ownership of Spyker through December 2011 (points 87 to 112)
The first deal addressed in this section is actually the deal with Hawtai. Saab drew up the deal and GM initially showed concern that it would breach the terms of the ATLA, but were later said to be open to viewing it favourably. It didn’t matter in the end as Hawtai got the boot from the Chinese government, who (quietly) said they wouldn’t approve the investment. They wanted Youngman in on the deal (these bits aren’t stated in the points, they’re my added context).
The rest of Saab/Spykers efforts in this section are of varying degrees of contextual importance, but they come down to this:
- Saab structures deal with Pang Da and/or Youngman and GM sinks the deal, citing the ATLA.
One important bit:
92. Through contemporaneous communications with Mr. Kaminski, Mr. Muller informed GM that Saab was continuing to attempt to secure the necessary government approvals and, if it was unable to do so, another Chinese company, Youngman, stood ready to enter into a strategic partnership with Saab. Mr. Kaminski responded, “Victor, Thanks for the update. Good luck.”
The number of proposed deals here is significant, and GM’s objection to them is based on the ATLA every time. It may or may not be significant to note here that much of this was done while Saab was in voluntary reorganisation under Swedish law and under the control of administrator, Guy Lofalk.
Spyker Structures Deal with Youngman That Does Not Require GM Consent (points 113 to 126)
The veracity of this section, to me, is the crux of this matter.
Spyker claim to have struck a deal with Youngman on December 16 that would sanction GM technology from Youngman’s view and would convert Saab’s debt to Youngman (a significant €200m) into equity only after Saab had stopped using GM technology completely. This deal is referred to as the Framework Agreement (remember that name).
Important claims by Spyker/Saab in reference to this:
120. Under the Framework Agreement, Youngman would have had no access in any way to any GM technology.
121. Pursuant to the Framework Agreement, Saab and Youngman would have established a joint venue in which each company had an equal interest.
122. This joint venture would develop future Saab models based upon the PhoeniX platform.
123. The version of the PhoeniX platform that the joint venture would acquire contained no GM proprietary technology.
124. The Framework Agreement therefore did not require GM’s approval under the ATLA or any other contract between GM, its affiliates, Saab or Spyker.
The battle lines are drawn.
GM Tortiously Interferes with the Youngman – Saab Agreement (points 127 to 141)
Spyker/Saab claim that they established a firewall around GM’s interests in the Framework Agreement. They also establish that GM had a copy of the Framework Agreement provided to them, so they were fully aware of the firewall they believe that they built.
GM’s response is noted in point 128:
Saab’s various new alternative proposals are not meaningfully different from what was originally proposed to General Motors and rejected. Each proposal results either directly or indirectly in the transfer of control and/or ownership of the company in a manner that would be detrimental to GM and its shareholders. As such, GM cannot support any of these proposed alternatives.
The way I see it, Spyker/Saab are saying that despite GM’s interests being protected and the ATLA not being breached by the Framework Agreement, GM continued to make significant public statements to the effect that they would not support the agreement, and that they would withhold supply to Saab if the agreement went ahead.
It then came down to whether or not Youngman were willing to call GM’s bluff. They weren’t. The perceived risk of GM being able to deny them product or supply was seen by them to be too great.
Saab were at their last option when this deal was drawn up and had no choice but to file for bankruptcy under Swedish law on December 19th, 2011.
All that boils down to the claims below:
142. Plaintiffs re-allege and incorporate the allegations set forth above as if fully set forth herein.
143. Despite initial appearances, GM never intended to allow Saab to compete with it in China. When Saab found a way to secure liquidity and continue as a going concern with the help of Chinese investors, GM was determined to scuttle the deal by any means necessary, including the publication of false information about its rights under the parties’ contracts.
144. As set forth above, Spyker and Saab had a valid business expectancy in the Framework Agreement.
145. GM had knowledge of the business expectancy from multiple sources.
146. GM intended to wrongfully interfere with the business expectancy in order to protect itself from competition in the Chinese marketplace.
147. Based upon the structure of the Framework Agreement, of which GM was aware, GM could not justifiably rely on the ATLA non-assignment provisions or any other contractual provisions to oppose the Framework Agreement, because GM’s proprietary technology had been expressly carved out of the Youngman – Saab deal.
148. GM had no legal basis to assert that its consent to the Framework Agreement was required or to withhold its consent.
149. GM resorted to making intentionally false statements that GM’s consent was required and that GM would oppose the deal.
150. GM also wrongfully threatened to breach the Saab Vehicle Supply Agreement if Spyker and Saab entered the Framework Agreement.
151. As a direct and proximate result of GM’s wrongful threats and intentionally false statements, and for no other reason, Youngman did not enter into the Framework Agreement, causing a termination of Spyker and Saab’s valid business expectancy and Saab to enter into liquidation.
152. GM’s tortious interference with Saab’s and Spyker’s economic expectancy in the Framework Agreement has caused Saab and Spyker damages in an amount to be proven at trial, but no less than $3,000,000,000.
There will be plenty of conjecture in comments and in the wider press about who might win, the points of law that will need to be determined and whether or not the parties might settle.
I’m not a lawyer, so I don’t know one way or the other.
I don’t personally think that GM were concerned about competition from Saab in China. I think they were worried about their technology becoming available there without their direct control, but I also think that control could have been established by Saab under the terms of the Framework Agreement. I think GM’s direction towards certain Chinese investors is telling, especially when they were acutely aware of Saab’s difficulties.
How much emphasis should the court give to this episode compared with other conditions that might have contributed to Saab’s bankruptcy? Should those other conditions even be a factor? Saab claim that this Framework Agreement could have saved the company in the state that it was in at the time. Will the court agree and do they then have to extrapolate what might have happened after? (Surely not).
Personally speaking, I do hold GM accountable for a lot of the things that happened to Saab – not all, but a lot. I have, for a long time, thought that GM put Saab in the too-hard basket and that that’s no reason for a great car company to die. I certainly wouldn’t mind if the judge found in Spyker/Saab’s favour and it’ll be interesting to see how this plays out.