Now, it has been signed. Discussions over the possible acquisition of Opel/Vauxhall from General Motors by the PSA Group have finally reached a conclusion. The parties, including international banking group BNP, have finally inked an agreement in which GM is selling both its automotive and financial operations in Europe for a whopping EUR2.2 billion (around $2.33 billion).
According to the terms of the agreement, PSA will be acquiring Opel and Vauxhall – GM’s automotive operations in Europe – for EUR1.3 billion (around $1.38 billion). PSA and BNP Paribas are forming a 50-50 joint venture to acquire the European operations of GM Financial at 0.8 times of its pro forma book value or around EUR900 million (around $953 million). Thus, the transaction – the sale of Opel/Vauxhall automotive operations and GM Financial’s entire European operations – has a total value of EUR2.2 billion.
PSA’s share of the entire transaction -- Opel/Vauxhall and half of GM Financial’s European operations – will cost the French group around EUR1.75 billion (around $1.85 billion). BNP Paribas’ share of the transaction – 50 percent GM Financial’s European operations – will cost the banking group around EUR450 million (around $476 million).
Up for grabs for PSA are Opel/Vauxhall’s entire automotive operations. This includes the Opel and Vauxhall brands, six assembly plants and five parts production sites, as well as GM’s engineering center in Russelsheim, Germany. Opel and Vauxhall’s around 40,000 employees are also included. However, the deal doesn’t include GM’s engineering center in Torino, Italy. Opel and Vauxhall will still benefit from GM’s intellectual property licenses until such time that these brand’s vehicles are converted to PSA platforms.
Once the agreement reaches finality, Opel and Vauxhall will be totally under the PSA Group’s wings. With Opel and Vauxhall generating EUR17.7 billion in 2016, the PSA Group is poised to take a 17-percent market share in Europe. This will effectively allow the PSA Group (plus Opel) to become the second largest carmaker in Europe, next to the Volkswagen Group that boasts of controlling around a quarter of the European market.
The PSA expects the transaction to allow for significant economies of scale as well as synergies in purchasing, manufacturing and R&D. In fact, the French company is expecting annual synergies of EUR1.7 billion 2026. Since a substantial part of these synergies is expected to come by the end of the decade, Opel/Vauxhall would be able to turn around their misfortunes at a faster pace. In terms of figures, PSA is expecting Opel/Vauxhall to achieve an operating margin of two percent and a positive operational free cash flow by 2020. PSA is also expecting its new acquisition to post an operating margin of six percent by 2026.
This acquisition agreement is considered as one of the biggest and is expected to change the automotive landscape in Europe. Nonetheless, it might lead to massive job cuts. Around 19,000 of Opel/Vauxhall employees are in Germany and around 4,500 are located in the UK. Massive job cuts are expected to be a sensitive issue in the upcoming elections in France and Germany, as government officials weigh in on possible political backlash from the transaction.
GM’s decision to sell Opel/Vauxhall should allow it to get rid of its European business, which has been posting losses for nearly two decades since 1999. GM has already lost $20 billion in Europe, which forced it to close its production facilities in Bochum, Germany. Even though Opel/Vauxhall has squeezed out costs and has vastly improved its offerings, it remains unprofitable and has been losing market share in Europe. This is simply because Opel/Vauxhall has low profit margins with production being done in Germany, Spain and the UK, where labor costs are high.