French group PSA acquires GM’s European business for $2.3 bn

French automaker PSA Group is acquiring General Motor's European business comprising the Opel and Vauxhall divisions and GM Financial's European operations for around $2.3 billion (€2.2 billion ), the two companies stated in a joint release today.

''General Motors Co and PSA Group 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 billion and €0.9 billion, respectively,'' the release stated.

PSA, the maker of Peugeot and Citroen cars, will pay €1.8 billion ($1.9 billion) for GM's Opel unit and its UK sister brand Vauxhall and another €400 million ($500 million) for GM Financial unit.

GM, which is taking a charge of between $4 billion and $4.5 billion on the ailing Opel and Vauxhall divisions, will continue to sell Chevrolets in small volumes in Europe.

With the addition of Opel / Vauxhall, which generated revenue of €17.7 billion in 2016, PSA will become the second-largest automotive company in Europe, with a 17 per cent market share.

The merger creates sound European foundation for PSA to support its worldwide profitable growth. The deal is expected to close by the end of the year, pending regulatory approvals.

''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 capitalising 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.''

GM is exiting a business its controlled for nearly 90 years after unsuccessfully working since 1999 to bring the Opel / Vauxhall subsidiary back into the black and losing nearly $20 billion in the process.

PSA and GM, partners in an alliance since 2012, have been in discussions for several months on the possible sale.

''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,'' said Tavares.

''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,'' Barra concluded.

Gains for both
The transaction will allow substantial economies of scale and synergies in purchasing, manufacturing and R&D. Annual synergies of €1.7 billion 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 margin of 2 per cent by 2020 and 6 per cent by 2026, and to generate a positive operational free cash flow  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 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 billion, 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.