Opel and Vauxhall to Officially Join PSA Group

One of the worst kept secrets in the automotive industry is out of the closet. 

After a month of swirling rumors General Motors and PSA Group officially announced PSA’s acquisition of GM’s Opel/Vauxhall European operations for a €2.2 billion sum.

The addition of Opel/Vauxhall transforms PSA into Europe’s second-largest car company, commanding a 17% share in the old world, while adding €17.7 billion in revenue to its balance sheet.

“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.

For PSA, the transaction offers significant opportunities for scale and synergies across Europe, to the tune of €1.7 billion projected savings in purchasing, manufacturing and R&D by 2026.

French bank BNP Paribas will also gobble up the entirety of GM Financial’s European operations as part of a 50/50 joint venture that will see GM’s current employees and platform retained and integrated. Parted out, the purchase of Opel Bank will cost BNP just €460 million.

For GM, the deal needed to happen in order to continue with the company’s ongoing transformation–already delivering three consecutive years of record performances while dragging an unprofitable Opel/Vauxhall along kicking and screaming–allowing Detroit to focus on “deployment of resources to higher-return opportunities including in advanced technologies driving the future.”

The deal also gives GM the ability to return cash to its shareholders as it looks to improve the company’s sideways trending stock price. “By immediately improving General Motors’ overall business profile, the transaction will enable us to increase our returns to shareholders,” GM President Dan Ammann said at a news conference early Monday in Paris. It may not seem so, but the upside to Detroit is no longer having to pour cash into a region with increasing irrelevance to the rest of the company’s global operations. Look for GM to explore more product synergies with its Chinese partner SAIC.

“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 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.”

In exchange for PSA honoring existing supply agreements for certain Buick and Holden models, GM will allow access to electrification technologies along with the potential for long-term supply of fuel cell systems from GM’s new joint venture with Honda.

The real sticking point of the deal was GM’s funded and unfunded pension obligations in Europe. With the exception of the German Activities Plan and a few select smaller plans, GM will retain full responsibility. GM will pay PSA €3.0 billion in order to settle obligations with GAP and the smaller plans.

Obviously the sale is subject to closing conditions and regulatory approvals, if all goes according to plan the sale is expected to close by the end of 2017.

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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