GM shares reacted by rising more than 2 percent, hitting their highest level since January 2005, on speculation that the automaker could use the proceeds from the Allison sale to fund a cost-cutting deal on health care in upcoming talks with the United Auto Workers union.
GM said the sale would include almost all of the Allison Transmission unit's assets, including seven manufacturing plants in Indianapolis and the unit's worldwide distribution network.
The sale is expected to close as soon as the third quarter, GM said, provided the deal is approved by GM's industrial union and regulators.
The conclusion of the sale to the two private equity firms comes just as GM is heading into a crucial round of contract talks with the United Auto Workers union in which the automaker will be seeking concessions to lower its labor costs.
The Allison agreement also extends a string of asset sales by GM over the past two years as it restructures and cuts costs, including a deal to spin off a majority stake in its former finance arm GMAC to private equity firm Cerberus Capital Management.
"This is another important step to strengthen our liquidity and provide resources to support our heavy investments in new products and technology," GM Chief Executive Rick Wagoner said in a statement.
JP Morgan analyst Himanshu Patel said in a note for clients that the sale agreement valued Allison at almost nine times trailing cash flow, a higher multiple than he had expected. Patel said GM could use the sale of the unit to fund a one-time payment to set up a trust fund for union workers' health care, similar to a deal negotiated by Goodyear Tire & Rubber and the United Steel Workers union.
"We suspect GM would look to sell this highly profitable unit to line up financing for a (Goodyear)-style health-care deal," he said.
Shares of GM, the world's No. 2 automaker by volume behind Toyota Motor Corp., have gained more than 29 percent this month on building expectations that the company could win sweeping changes to its contract with the UAW that would lower hourly labor costs.
GM said it would retain a Baltimore, Maryland, plant now under Allison that makes conventional and hybrid transmissions for the automaker's pickup trucks and sport-utility vehicles.