Peugeot maker PSA to buy GM's Opel in $3.29 billion deal

The deal includes the Germany-based Opel, its UK nameplate Vauxhall, as well as the GM unit's financing operations.
The deal includes the Germany-based Opel, its UK nameplate Vauxhall, as well as the GM unit's financing operations.PHOTO: BLOOMBERG

PARIS (BLOOMBERG) - PSA Group agreed to buy General Motors' Opel unit in a transaction valued at 2.2 billion euro (S$3.29 billion), creating Europe's second-largest carmaker in a bid to better compete in the region's saturated market.

The combination is expected to generate annual savings of 1.7 billion euros by 2026, with the loss-making Opel unit generating an operating profit margin of 2 per cent by 2020 and 6 per cent by 2026, GM and the Paris-based maker of Peugeot and Citroen vehicles said in a joint statement.

The deal includes the Germany-based Opel, its UK nameplate Vauxhall, as well as the GM unit's financing operations. BNP Paribas will buy 50 per cent of the financing business for about 450 million euros.

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 US$9 billion (S$12.7 billion) since 2009. PSA is betting that adding Opel's roughly 1.2 million in annual deliveries will solidify its own turnaround by spreading the costs for developing new vehicles across a larger network.

Job and production cuts are likely as the two companies offer a similar slate of mass-market cars from high-cost locations in Germany, France and the UK.

"We are confident that the Opel/Vauxhall turnaround will significantly accelerate with our support," PSA chief executive officer Carlos Tavares said in the statement. "Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner."

For GM, exiting Opel will lead to a non-cash charge of US$4 billion to US$4.5 billion. The deal will continue efforts to shed underperforming assets and will free up about US$2 billion in cash to use for share buybacks, according to the statement.

The deal would reinstate PSA as Europe's second-biggest carmaker after Volkswagen, pushing it past Renault following a steady decline in market share in recent years. After streamlining operations following a 2014 bailout by the French state and Dongfeng Motor Corp, PSA CEO Tavares is shifting focus to growth. His vision for a combination of PSA and Opel is to create a "European champion" by slashing costs, combining development efforts and exploiting the appeal of German engineering.

With the addition of Opel, PSA is set control 16 per cent of the European auto market, putting it behind only Volkswagen's 24 per cent. The deal is the second run at linking the two carmakers after savings from a purchasing and development cooperation project fell short of expectations, prompting Detroit-based GM to sell its 7 per cent stake in its French counterpart in 2013.

Still, that cooperation is now starting to pay off. In February, Opel unveiled the new Crossland X compact sport utility vehicle, which shares underpinnings with PSA's Citroen C3 hatchback. A larger Opel SUV is set to follow later this year, which will be built at a PSA facility in France.

At Opel, Tavares will seek to replicate the turnaround he engineered at PSA, including cutting jobs, freezing pay and eliminating slow-selling, unprofitable models. The French company went from net losses starting in 2012 to profit in 2015, and generated 2.7 billion euros in cash in 2016. This year, for the first time since 2011, the company will pay a dividend.