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GM Basically Paid PSA To Take Opel

GM Basically Paid PSA To Take Opel

Monday General Motors and PSA Group announced plans for the French automaker to acquire Opel/Vauxhall from GM in a $2.3 billion deal. While the initial thought of GM selling money-losing Opel seemed to delight investors and analysts, GM’s stock traded downward yesterday and today as details of the deal took hold.

One such detail is fairly big one: GM basically paid PSA Group to take Opel off their hands. PSA Group is paying $2.3 billion for Opel/Vauxhall and the European arm of GM Financial, but there’s a small caveat in the deal. GM will pay PSA Group $3.2 billion to fund Opel’s pension plans for its roughly 30,000 employees. Subsequently, GM will continue to have to add about $400 million to meet Opel’s pension obligations associated with employees drawing on it before the time of the acquisition.

Opel’s total pension obligation is around $9.8 billion.

GM subtlety left the pension details out of their press release announcing the deal. The company did announce that it will have to take on a $4-4.5 billion mostly non-cash charge on its own financial statement associated with the transaction. Well, $3.2 billion of that will be for pension obligations while the rest is likely a paper write-down. For those who aren’t business finance wizards: that means GM sold Opel for less than it was valued at on their own balance sheet.

Despite the fuzzy numbers, the transaction is still likely in GM’s financial benefit. The rest of Opel’s liabilities will be promptly removed from the GM balance sheet. GM’s operating statement will also be freed of the perpetual stream of operating losses Opel has incurred over the last 17 years. Just since GM has emerged from bankruptcy in 2009 Opel has incurred over $9 billion in loss.

Perhaps as a consolation prize to GM for their generosity, PSA Group has agreed to provide GM stock warrants that total a 4.2 percent equity stake in the new PSA Group. GM can begin converting the warrants to cash in 2022.

 





 

About Nick Saporito

AutoVerdict Senior Editor Nick Saporito began writing about cars at age 13. Nick ran a couple of automotive enthusiast sites for several years, before taking some time off to focus on his career and education. By day he's a marketing executive in the telecom world and by night he hangs out here at AV. You'll find him focusing on tech, design and the industry's future.
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  1. member12
    I think people at Opel/Vauxhall are freaking out about the inevitable "trimming" of waste that will be happening there under new leadership.
    germeezy1
    Literally there is no measure that would seem extreme after the absolute debacle that has been GM Europe. I am sure that GM made adequate measures to ensure that the platforms, engineering, and intellectual property were well protected.
    megeebee
    So perhaps it could be said that PSA is the one that sold Opel?

    Still, GM will be spending (losing) far less money over a shorter period of time than if they wanted to keep Opel, I supppose.
    nsaporito
    member12
    I believe they tried to let go of Opel in 2009, but they could not find a buyer willing to offer decent terms.

    I'm concerned with what will happen with GM products in the future. A LOT of GM cars were engineered by Opel and share a chassis with Opel. Is that coming back to Detroit? South Korea? China?


    This actually isn't the case as much as people often believe. The lead engineer on nearly all of the current generation products was in Detroit, not Germany.

    Opel oftentimes resisted being confined to GM's internal processes/rules, so they tried to revolt a lot. Subsequently, GM just pushed them out. In hindsight, that was probably wise on their part.
    Z284ever
    So what's worse? Paying Fiat $4B, ($2B cash +$2B stock), to walk away or paying PSA $1B to give them Opel, Vauxhall and GM finance arm?

    I know GME had to go,but....
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