On Monday, the company that manufactures brands including Peugeot and Citroen announced that it would buy General Motors’ Opel and Vauxhall lines. The roughly $2.3 billion deal reportedly would close by year-end.
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.
Though the move would make PSA Group the second-largest automobile maker in Europe, the organization is taking a risk by buying two European brands that GM hasn’t been able to make profitable for years. For GM, the deal marks the U.S. automaker’s decision to cut its losses.
GM, which has owned Opel for almost 90 years, is cutting ties after the division missed a target to break even in 2016, contributing to losses that have totaled about $9 billion since 2009. In addition to the charge, GM is on the hook for much of Opel’s pension obligations and will pay PSA 3 billion euros to settle some retirement plans. Still, the deal will free up about $2 billion in cash, which GM plans to use for share buybacks.
In a PSA Group statement riddled with terms that included “synergies” and “take it to the next level,” the organization’s chairman of the managing board, Carlos Tavares, said:
“We are proud to join forces with Opel/Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround,” said Carlos Tavares, chairman of the Managing Board of PSA. “We respect all that Opel/Vauxhall’s talented people have achieved as well as the company’s fine brands and strong heritage. We intend to manage PSA and Opel/Vauxhall capitalizing on their respective brand identities. Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner. We see this as a natural extension of our relationship and are eager to take it to the next level.”
“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,” continued Mr. Tavares.
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GM’s chief executive, Mary Barra, said the transaction was part of an effort to reshape the company:
“We are very pleased that together, GM, our valued colleagues at Opel/Vauxhall and PSA have created a new opportunity to enhance the long-term performance of our respective companies by building on the success of our prior alliance,” said Mary T. Barra, GM chairman and chief executive officer.
“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum. We are reshaping our company and delivering consistent, record results for our owners through disciplined capital allocation to our higher-return investments in our core automotive business and in new technologies that are enabling us to lead the future of personal mobility.
“We believe this new chapter puts Opel and Vauxhall in an even stronger position for the long term and we look forward to our participation in the future success and strong value-creation potential of PSA through our economic interest and continued collaboration on current and exciting new projects,” Ms. Barra concluded.
Though the purchase is a risk, experts predict it eventually would save PSA money in development costs and increase PSA’s profit margins.
Bringing the two automakers together will yield projected annual savings of 1.7 billion euros by 2026 by combining development costs, factory investments and purchasing. That will help Opel generate an operating profit margin of 2 percent by 2020 and 6 percent by 2026. Initially the deal will be a drag, with PSA’s profit margin from automaking likely to drop to 3.8 percent from 6 percent, according to an estimate from UBS AG.
The news also generated positive press for PSA, which in turn led to a boost in its stock price.
“PSA shares rose as much as 5.25 percent to 20.06 euros, the highest level since July 2011,” Bloomberg reported.
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