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GM strikes deal to sell control of European operations

Germany's chancellor hails the deal that will put Opel and Vauxhall in the hands of a consortium led by Canadian auto parts maker Magna.

September 11, 2009|Ken Bensinger

After months of debate, General Motors Co. has agreed to sell a majority stake of its European operations to a consortium of buyers led by a Canadian parts maker.

Under terms of the deal, released by GM on Thursday, the Detroit automaker will sell 55% of its Adam Opel and Vauxhall units to Magna International Inc., Russian bank OAO Sberbank and Russian carmaker OAZ Gaz. An additional 10% would go to employees, while GM would maintain a 35% share.

The deal was confirmed by German Chancellor Angela Merkel at a news conference Thursday.

"The government's patience and purpose has paid off," said Merkel, who had been actively involved in negotiations with a number of bidders for Opel, including RHJ International, a Belgium-based private equity fund, since GM announced it would sell the division this spring. "It was not an easy path."

The decision to sell to Magna was made by the new board of GM, which met this week to discuss the matter. Under the leadership of Chairman Edward E. Whitacre Jr., the board considered an array of options, including trying to keep control of Opel for GM, before finally selecting the Magna bid.

A key issue, apparently, was financing the deal. Because of the costs involved, any sale would have to be supported with loans from the German government. Although reports suggested that GM favored RHJ's bid, Merkel had indicated her support for Magna, in part because it appeared fewer jobs would be lost in such a deal.

"We thank all parties involved in the intensive process of the last few months -- especially the German government -- for their continued support that enables this new venture," said GM Chief Executive Fritz Henderson.

GM said the structure would allow it to keep the European operations integrated with GM's global product development plans.

Separately, GM operates a Europe-based Chevrolet division, but it represents less than 5% of that region's market, though many of its designs and assembly platforms are based on intellectual property designed in Opel facilities.

Negotiating the deal was a slow and laborious process. Magna first bid on Opel in April, before GM's Chapter 11 filing. Shortly thereafter, GM said that RHJ and Italian automaker Fiat had also bid for the brands, and in May a Chinese automaker, Beijing Automotive Industry Holding, threw its hat in the ring.

Talks cooled after GM's bankruptcy filing, but last month the German government indicated its preference for Magna, indicating it could offer $4.5 billion in financing for such a deal.

The stakes were particularly high for Merkel, who faces intense public scrutiny on the eve of parliamentary elections this month. Germany has already extended about $2 billion in financing to Opel to keep it afloat in the auto sales downturn.

Opel's largest operations are in Germany, with the automaker employing roughly 25,000 people there, but it has plants in several other European countries. Selecting a suitor that would lead to greater job losses probably would have been politically dangerous for Merkel, because Opel unions have tremendous power at the polls.

For GM, finalizing the deal represents one of the last major hurdles in the restructuring plans it put forward during the climax of its crisis. GM has also reached deals to sell its Saab and Saturn brands, and is still negotiating the sale of the Hummer sport-utility brand to a Chinese buyer.

GM will kill its Pontiac brand altogether, leaving it with just four brands in the U.S.: Chevrolet, Cadillac, GMC and Buick.

Magna, one of the auto industry's largest parts suppliers, must now learn to become an automaker as well, a transition analysts say could prove a serious challenge.

"On the positive side, it should create opportunities in the European and Russian markets and give [Magna] access to additional technology," said Efraim Levy, equity analyst at Standard & Poor's. "On the negative side, we see a risk that at least initially some existing [Magna] customers will be reticent about dealing with a firm that is both a supplier and a competitor."


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