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    William Maley

    Its Official! PSA Group To Buy Opel and Vauxhall In $2.3 Billion Deal

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      Opel and Vauxhall say goodbye to GM and hello to PSA Group


    It is now official. This morning, PSA Group has agreed to buy Opel and Vauxhall from General Motors for 2.2 billion euros (about $2.3 billion). The deal is comprised of a 1.8 billion euros ($1.9 billion) payment for Opel and Vauxhall, along with a stake in Opel's financing arm. This makes PSA Group the second-largest automaker in Europe.

    “It gives us the opportunity to become a real European champion. Our plan is to build a common future for Opel and Vauxhall and fix the existing issues,” said PSA Chief Executive Officer Carlos Tavares.

    Those existing issues include Opel and Vauxhall never breaking even for GM. Over the past two decades, Opel and Vauxhall have lost almost $20 billion. In 2016, the division was projected to break even, but the complications of Great Britain leaving the EU meant they posted a loss of $257 million.

    "The way I look at this is positioning Opel-Vauxhall to be incredibly successful in the future," said GM CEO Mary Barra when asked by a reporter if she was relieved about the sale of Opel and Vauxhall. 

    "General Motors doesn't have to be relieved. They can be proud of giving Opel-Vauxhall a better future," said Tavares.

    PSA Group is aiming to make Opel and Vauxhall profitable once again, with operating profit targets of 2 percent in 2020 and 6 percent by 2026. These targets will be reached by joint cost savings of 1.7 billion euros (about $1.8 billion) by spreading the costs of developing new vehicles and sharing purchasing costs.

    General Motors won't be fully cutting its ties with Opel and Vauxhall for the time being. GM has allowed PSA Group to license technology rights to keep selling current models (including the upcoming Insignia) until they transition onto PSA platforms. According to Reuters, the next-generation Opel/Vauxhall Corsa will be the first PSA developed model. GM will also collaborate with PSA on various projects such as hydrogen fuel cells. Finally, GM will pay PSA 3 billion euros ($3.18 billion) to settle transferred pension obligations.

    But there are still a number of unanswered questions with this deal. The big one deals with job cuts and plant closures. With this deal, PSA group will add roughly 38,000 workers and 10 production facilities. Some analysts believe that PSA Group will close two to three plants within the next five years, with the possibility of those closures taking place in Great Britain due to Brexit. Taveres has said that the automaker would honor existing labor agreements and closing plants is a “simplistic” solution.

    “We don’t need to shut down plants,” said Tavares.

    Second is what will happen for Buick and Holden when models they share with Opel transition to PSA platforms. Both Buick and Holden will be getting the next-generation Insignia as the Regal and Commodore. Buick also gets the Opel Mokka to sell as the Encore, while Holden sells the Astra compact.

    Finally, there is the question about PSA Group's plans to re-enter the U.S. How does the purchase of Opel and Vauxhall affect their plans?

    Source: Bloomberg, Reuters, Automotive News (Subscription Required), General Motors, PSA Group
    Press Release is on Page 2


    Opel/Vauxhall to join PSA Group

    • Establishes PSA Group as #2 in Europe. This strong and balanced presence in its home markets will serve as the basis of profitable growth worldwide
    • Joint venture in auto financing with BNP Paribas to support development of Opel/Vauxhall brands
    • €2.2 Bn transaction advances GM’s transformation and unlocks shareholder value through disciplined capital allocation

    Detroit and Paris – General Motors Co. (NYSE:GM) and PSA Group (Paris:UG) today announced an agreement under which GM’s Opel/Vauxhall subsidiary and GM Financial’s European operations will join the PSA Group in a transaction valuing these activities at €1.3 Bn and €0.9 Bn, respectively.

    With the addition of Opel/Vauxhall, which generated revenue of €17.7 Bn in 20161, PSA will become the second-largest automotive company in Europe, with a 17% market share2.

    Creates sound European foundation for PSA to support its worldwide profitable growth

    “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.

    Advances GM’s Transformation and Unlocks Value

    “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.

    Strengthens Each Company for the Long Term

    The transaction will allow substantial economies of scale and synergies in purchasing, manufacturing and R&D. Annual synergies of €1.7 Bn are expected by 2026 – of which a significant part is expected to be delivered by 2020, accelerating Opel/Vauxhall’s turnaround. Leveraging the successful partnership with GM, PSA expects Opel/Vauxhall to reach a recurring operating margin3 of 2% by 2020 and 6% by 2026, and to generate a positive operational free cash flow4 by 2020.

    PSA, together with BNP Paribas, will also acquire all of GM Financial’s European operations through a newly formed 50%/50% joint venture that will retain GM Financial’s current European platform and team. This joint venture will be fully consolidated by BNP Paribas and accounted under the equity method by PSA.

    The transaction is another step in GM’s ongoing work to transform the company, which has delivered three years of record performance and a strong 2017 outlook, and returned significant capital to shareholders. It will strengthen GM’s core business, support its continued deployment of resources to higher-return opportunities including in advanced technologies driving the future, and unlock significant value for shareholders.

    By immediately improving EBIT-adjusted, EBIT-adjusted margins and adjusted automotive free cash flow and de-risking the balance sheet, the transaction will enable GM to lower the cash balance requirement under its capital allocation framework by $2 Bn, which it intends to use to accelerate share repurchases, subject to market conditions.

    GM will also participate in the future success of the combined entity through its ownership of warrants to purchase shares of PSA. GM and PSA also expect to collaborate in the further deployment of electrification technologies and existing supply agreements for Holden and certain Buick models will continue, and PSA may potentially source long-term supply of fuel cell systems from the GM/Honda joint venture.

    Additional Information

    Terms of the Agreement

    Opel/Vauxhall automotive operations will be acquired by PSA for €1.3 Bn. GM Financial’s European operations will be jointly acquired by PSA and BNP Paribas for 0.8 times their pro forma book value at the closing of the transaction, or approximately €0.9 Bn.

    The transaction has a total value of €2.2 Bn, for Opel/Vauxhall automotive operations and 100% of GM Financial’s European operations.

    The transaction value for PSA, including Opel/Vauxhall and 50% of GM Financial’s European operations, will be €1.8 Bn.

    In connection with this transaction, GM or its affiliates will subscribe warrants for €0.65 Bn. These warrants have a nine-year maturity and are exercisable at any time in whole or in part commencing 5 years after the issue date, with a strike price of €1. Based on a reference price of €17.34 for the PSA share5 , the warrants correspond to 39.7 MM shares of PSA, or 4.2% of its fully diluted share capital6. GM will not have governance or voting rights with respect to PSA and has agreed to sell the PSA shares received upon exercise of the warrants within 35 days after exercise.

    The transaction includes all of Opel/Vauxhall’s automotive operations, comprising Opel and Vauxhall brands, six assembly and five component-manufacturing facilities, one engineering center (Rüsselsheim) and approximately 40,000 employees. GM will retain the engineering center in Torino, Italy.

    Opel/Vauxhall will also continue to benefit from intellectual property licenses from GM until its vehicles progressively convert to PSA platforms over the coming years.

    In connection with the transaction, GM will take a primarily non-cash special charge of $4.0-4.5 Bn.

    Ongoing Pension Fund Commitments

    All of Opel/Vauxhall’s European and U.K. pension plans, funded and unfunded, with the exception of the German Actives Plan and selected smaller plans will remain with GM. The obligations with respect to the German Actives Plan and these smaller plans of Opel/Vauxhall will be transferred to PSA. GM will pay PSA €3.0 Bn for full settlement of transferred pension obligations.

    Closing Conditions

    The transaction is subject to various closing conditions, including regulatory approvals and reorganizations, and is expected to close before the end of 2017.

    Warrants

    The issuance of the warrants is subject to the vote of shareholders at PSA’s General Meeting of May 10th, 2017. The three main shareholders of PSA (the French State, the Peugeot family and DongFeng) representing in aggregate 36.6% of the share capital and 51.5%7 of the voting rights of PSA have undertaken to vote in favor of the resolution related to the issuance of the warrants to GM. In the event the warrant issuance reserved to GM and its affiliates is not approved by PSA’s General Meeting, PSA will settle the €0.65 Bn in cash over five years.

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    The Opel and PSA deal is done.  Opel is Sold!
     
     

    PSA Deal to Buy G.M.’s Opel and Vauxhall Faces Political Winds:

     
     
     

    Vauxhall-Opel sold by GM to Peugeot-Citroen

     
     
     
     
    PSA agrees to buy Opel in $2.3 billion deal 
    PSA has agreed to buy Opel from GM in a deal valuing the business at 2.2 billion euros ($2.3 billion), the companies said on Monday, creating a new regional car giant.
     

     

     

     
    GM executives said they decided to sell Opel because Europe's changing geo-political and regulatory climate demands more investment at a time when they see a greater need to focus on North America, China and emerging technologies.
     
     

    GM sells Opel, Vauxhall to PSA: Here’s why it happened

    GM TO FOCUS ON NORTH AMERICA, CHINA AND EMERGING TECHNOLOGIES


     

     

     

     
     
    My thoughts:
     
    1. Now GM has to develop cars for every Opel they use now. That is half of Buicks and Holdens line up. 
    2. Focus on what in North America? They killed brands here(Saturn, Hummer, SAAB Pontiac and Oldsmobile)  and Chevrolet is sitting there with too many cars and suvs in its lineup.  That is why the SS did not sell because it was at the wrong brand.  GM needs to accept not everyone will buy a Chevrolet and how Chevrolet is seen by the buying public. 
    3. Cadillac is short on Suv's and crossovers and a flagship car above CT6.
    4. So what in America do they need to focus on??
    5. Questions:
     

    There have been some questions raised about the deal. Some observers wondered what it would mean for GM to no longer be a truly global company. And the loss of about 1.2 million annual sales could impact its broader economies of scale – potentially raising costs.

    Some Opel products are marketed in the U.S. under other GM brand names – the Buick Cascada convertible being one example – so GM will now have to develop replacements.

     
    6. GM is not in Europe any longer. So, they are not truly a global player. 
     
    7. This is the only benefit I see in the deal:
     
    If PSA can turn things around at Opel, it could pay off for GM in the long-run. It holds warrants to purchase shares of the French company.
     
    8. I am watching to see what happens to Holden and Buick and what role Holden will play now. 

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    Better to ditch Europe than be a global player when the European auto market implodes.

    As for Regency's points: Do we miss Pontiac? Sure.  GM does not simply for profit reasons.  The SS should have been the new Bonneville, but GM wasted Pontiac after 1985 or so.  Cadillac could use a better and larger CUV lineup and the CT8 to come out NOW rather than in the next three years.  As for developing Buicks and Holdens, let China do the heavy lifting since China is buying anything with a Buick logo on it.

    Lastly, ditching a LOT of European pension obligations is a GOOD thing.  The GM empire needs to shrink so that GM can actually survive if not thrive past 2030.

    • Upvote 1

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    It makes sense, GM doesn't make money in Europe, PSA does make money in Europe, and can consolidate Opel/Vauxhaul in and through platform and engine sharing, HR and financing sharing, etc, can keep this all profitable.  Makes PSA #2 in Europe, it makes sense for both sides.

    GM can build Buicks from Chevys, no big deal.  They Opel Buicks (or Opel Saturns) never sold well anyway.

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    As I said before.. the Opel/Vaux engineering is still GM engineering. I will add that the true benefit having them was specifically to cater to certain aspects of Euro market.. outside of that market their necessity drops. I will also add that in terms of chassis development, engines, styling, and quality control.. the NA hub has been spectacular in the last decade on its own. Those worried about shared Opel and Buick vehicles.. should fret not.. the Regal and Encore at least will still be offered as the would have been before this sale. Lastly.. GM might actually end up making more money in the next 2 years off of Opel/Vaux that they would have in 2020 due to the fact that PSA does have to pay them licensing. OH.. and that "Non-Compete" with Chevy markets includes U.S. and China from what I read

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    • I have 2 of my muscle cars already. I would certainly entertain a '50s Eldorado Seville and one of the late '50s MoPar supercars, preferably an Adventurer but a 300 Letter Series would be just peachy too.
    • [Wanders off over the moonscape...]
    • Dozens of unique vehicles sell less than 30K per year. Volume is immaterial, profit is the prime consideration. But even then: Luckily, Cadillac, and in turn; General Motors, produces dozen & dozens & dozens of other models. Tesla only builds like 11K Model S per year. Course; they don't make a profit... but they're still building the thing. We've read some wags claim that 'Chevy doesn't make any money; too many low margin models' and 'Buick sales are slowing every year; it can't be making a profit' and 'Cadillac doesn't sell 2 million units/year; therefore they can't be making a profit'. Solid, disconnected thinking there, that. Gee, I don't think GMC is making $11 billion in profit all by itself.
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