Issue: Sep 2009


GM's sale of Opel/Vauxhall to Magna



IHS Global Insight auto analyst Tim Urquhart's note on GM's sale of Vauxhall and Opel to Magna

by IHS Global Insight

German Chancellor Angela Merkel has said that General Motors (GM) has agreed to sell a majority share in its European Opel unit and its U.K affiliate Vauxhall to Austrian-Canadian automotive components manufacturer Magna International. Right up until the 11th hour the future of the Opel remained undecided, with GM appearing to be leaning towards the option of retaining Opel itself after a 10-month sales process.

At the same time GM issued a press release which stated that the board had approved the sale of a 55% stake in Opel to Magna and its Russian financial backer Sberbank. The press statement said several key issues will be finalized over the next few weeks to secure the binding agreements, including the written support of the labour unions to support the deal with the necessary cost restructuring for viability and the finalization of a definitive financing package from the German government. It claimed that a final contract would be ready to sign in the next few weeks. The deal will follow the ownership spilt of the original Magna proposal; with Magna/Sberbank holding a 55% stake, GM retaining a 35% stake, while Opel's employees will be given a 10%n stake in the company.

However, it is interesting that GM has said that 'several key issues will be finalized over the next few weeks'. This may indicate that the key issue of difference between Magna and GM of the ownership and rights of intellectual property use may yet to be resolved. This may still be a sticking point in negotiations and until the contract is finalized and signed nothing is assured. However, there is one big winner as a result of today's announcement. German Chancellor Angela Merkel has her preferred solution for Opel in place in time for the German general election which is due to take place on September 27.

In the final analysis Magna became the only feasible option left open to GM. The German government was not going to make loan guarantees available to RHJ as a result of the political opposition to private equity. In addition the prospect of GM retaining majority ownership of Opel was unfeasible without external financial support, with estimates that GM would require US$6 billion of extra financing just to keep hold of Opel, according to the KPMG study reported today. Plus Klaus Franz said that GM would face widescale industrial action if it attempted to keep Opel.

So despite attempting to delay the process GM was left with only two options. Shut it down or sell to Magna


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