GM May Try to Keep Opel

Aug. 25, 2009
Media report says GM is developing a $4.3 financing plan to keep control

General Motors, which for months has been trying to sell Opel, reportedly is now trying to keep the ailing German brand, a move that would drive a stake in Berlin's favored option: a takeover by Magna.

GM is trying to develop a $4.3 billion financing plan that would allow it to keep control of Opel, The Wall Street Journal reported late on August 24.

That amount would compete with the 4.5 billion euros (US$6.4 billion) the German government is offering in public financing to support a takeover by Canadian auto parts maker Magna and its bid partner, Russian state-owned bank Sberbank. It also is roughly in line with the 3.8 billion euros (US$5.4 billion) in public financing offered by rival bidder, Brussels-based investment group RHJ International.

If the automaker changes strategic tack, it would short-circuit the massive rescue effort of Opel undertaken by the German government in the face of potential big job losses -- about half of GM's 50,000 European employees work in Germany -- ahead of September 27 elections in which Chancellor Angela Merkel is seeking a second term.

After having clearly expressed for months its desire to get rid of Opel and its British affiliate, Vauxhall, which form the core of the company's European operations, GM, once the world's largest automaker, struck a tentative agreement with Magna in May, days ahead of seeking bankruptcy protection.

But the potential deal has suffered tortuous setbacks, with GM and Berlin wanting to raise the bids, and a smaller GM emerging from bankruptcy-court reorganization in July under new leadership and stripped of assets. The parties reached an impasse last weekend, after the GM board of directors discussed the options for Opel but did not proceed with the Magna offer, backed by Berlin, or that of RHJ.

While GM remained tight-lipped over the fate of Opel, German Chancellor Angela Merkel's government stepped up the pressure, calling on the US government, which owns more than 60% of GM, to push a resumption of negotiations with the automaker. On August 24, the White House rebuffed German government pressure, saying President Barack Obama's "view is that decisions made about the day-to-day operations at General Motors should be made by the folks at General Motors."

According to The Wall Street Journal, citing three sources involved in the matter, GM chief executive Fritz Henderson presented the options on August 21 to the company's newly formed board of directors in hopes of winning support for the Magna offer. "The board turned down the Magna deal, these people said, raising questions about how such a sale would affect GM's strategy in Europe, and also voicing concern about specific details related to the German government's financing commitment," the newspaper said.

According to the sources, the management team was asked to rethink its options, and also to prepare more scenarios for consideration, including a plan to raise billions in new financing that would allow GM to keep Opel for itself. Another option to be considered, "albeit remote," the Journal said, is the potential liquidation of the Opel business.

German government spokesman Ulrich Wilhelm said on August 24 that Germany had received "no indications" to support media reports that GM was considering holding on to Opel. Keeping Opel "would be in GM's long-term stratetic interests," said Terrence Guay, a professor of international business at Pennsylvania State University. "Giving up on the European market may, in 10 to 20 years, be viewed as a serious mistake" if GM intends to remain a global company, he said.

Copyright Agence France-Presse, 2009

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