General Motors to Sell European Operations for $2.3 Billion -- 3rd Update
March 06 2017 - 3:43AM
Dow Jones News
By Nick Kostov and Eric Sylvers
PARIS-- General Motors Co. on Monday said it would sell its
European business for EUR2.2 billion ($2.33 billion), as the U.S.'s
biggest auto maker withdraws from a region where it hasn't made
money for almost two decades.
Peugeot SA will pay EUR1.3 billion for GM's Opel and Vauxhall
brands, the companies said Monday. GM's financial operations in
Europe will be jointly acquired by Peugeot and BNP Paribas SA for
about EUR900 million.
As part of the deal, GM will also get warrants to buy 4.2% of
Peugeot's capital. GM won't get voting rights with these shares and
has agreed to sell any Peugeot stock it receives within 35 days of
receipt. These options can be exercised starting five years after
the issue date, so GM won't immediately become a shareholder in the
French company.
The deal, which is expected to close before the end of 2017,
will increase Peugeot's share of the European car market to 16%,
putting it ahead of French rival Renault SA but behind Volkswagen
AG's 24%.
Peugeot's purchase of Opel is the second major auto industry
deal in less than a year--following Nissan Motor Co.'s acquisition
of a controlling stake in Mitsubishi Motors Corp. last year--and it
could lead to additional consolidation in what is still a
relatively fragmented industry. Ten car makers sold more than
500,000 vehicles in Europe last year.
"We are confident that the Opel/Vauxhall turnaround will
significantly accelerate with our support, while respecting the
commitments made by GM to the Opel/Vauxhall employees," Peugeot
Chief Executive Carlos Tavares said.
Opel's sale leaves GM with nearly no presence in the world's
third-largest vehicle market, which was the industry's birthplace
and a focal point for automotive design.
GM unsuccessfully tried to establish Chevrolet in Europe before
largely exiting the market in recent years. It still sells some
higher-end Chevy sports cars there, but in small numbers. It isn't
likely to renew a push to build on Chevy sales soon because of the
high cost of establishing a brand in such a competitive market,
according to two people with knowledge of the company's
thinking.
Shrinking GM's global footprint carries risk in an industry
where scale is critical. Opel's departure cuts nearly 1.2 million
vehicle sales a year--or about 11%--off GM's global total, leaving
it as the only top-five auto maker by global sales that isn't a
player in Europe. GM remains the No. 1 or No. 2 car company in the
world's three other major markets: China, South America and North
America, which generated the lion's share of its record $12.5
billion operating profit in 2016.
The acquisition is a daring move by Mr. Tavares, who has made a
name for himself over the past three years as a cost-cutter, more
intent on squeezing out savings from existing operations than
building volume.
Now he will have to deliver on the promises he made to French
and German politicians and unions to build a European champion that
is better equipped to ride out the market's next downturn. The
previous industry slump that followed the financial crisis nearly
bankrupted Peugeot and opened the door for Mr. Tavares to take the
helm.
He is betting he can steer a successful turnaround at GM's
European operations, similar to the project he put in place at
Peugeot about three years ago. Last week, he said he could expand
the Opel brand beyond its home region and analysts have speculated
that he could use it to make a push into the U.S.
To make the Opel purchase a success, analysts say Mr. Tavares
will have to wield the knife and cut capacity by closing factories
in Europe. He has promised to honor existing agreements between
Opel and its workers in Germany and elsewhere in Europe, but most
of those will run out in about five years.
On Monday, Mr. Tavares promised EUR1.7 billion in annual savings
in areas such as purchasing, manufacturing and research and
development by 2026 as Peugeot and Opel start to join their
operations. He pledged to raise the operating margin of the Opel
business and its Vauxhall brand to 6% over the same period.
He said again that he wants Opel to remain a German brand within
Peugeot, officially known as Groupe PSA, a pledge that won him
plaudits with key German politicians and union leaders. He said no
matter how good Peugeot and Citroën cars are, in some markets it is
impossible to get people to buy a French car. It is in those
markets where he hopes to exploit Opel's German pedigree.
GM will remain liable for much of Opel's pensions obligations,
estimated at around $10 billion by analysts, which had been a major
sticking point during negotiations.
GM said it would take an accounting charge of $4 billion to $4.5
billion in connection with the transaction. Still, the U.S. auto
maker said the deal would free up about $2 billion in cash, which
it plans to use for share buybacks.
Mike Colias contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com and Eric Sylvers at
eric.sylvers@wsj.com
(END) Dow Jones Newswires
March 06, 2017 03:28 ET (08:28 GMT)
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