PSA in drive to be European giant
• Group to acquire Opel and Vauxhall from General Motors and will become Europe’s second-ranked car maker by sales after VW
PSA Group has agreed to buy Opel from GM in a deal valuing the business at €2.2bn, the companies said on Monday, creating a new regional car giant to challenge VW.
PSA Group has agreed to buy Opel from General Motors (GM) in a deal valuing the business at €2.2bn, the companies said on Monday, creating a new regional car giant to challenge market leader Volkswagen (VW).
The maker of Peugeot and Citroen cars vowed to return Opel and its British Vauxhall brand to profit, targeting an operating margin of 2% within three years and 6% by 2026 underpinned by €1.7bn in joint cost savings.
PSA shares jumped 4% after CE Carlos Tavares said GM’s European arm could be turned around using some of the lessons from the French group’s own recovery.
“We’re confident that the Opel-Vauxhall turnaround will significantly accelerate with our support,” he said.
By acquiring Opel, PSA leapfrogs French rival Renault to become Europe’s secondranked car maker by sales, with a 16% market share to VW’s 24%. In 2016, PSA and GM Europe recorded a combined €72bn in revenue and 4.3-million vehicle deliveries.
GM will receive €1.32bn for the Opel manufacturing business — €650m in cash and €670m in PSA share warrants.
An additional €900m will be paid by the Paris-based car maker and BNP Paribas for Opel’s financing arm, to be operated jointly and consolidated by the French bank.
The sale of Opel seals GM’s exit from Europe. Eight years after coming close to a sale to Canada’s Magna International, the Detroit automotive giant has faced renewed investor pressure to offload the business and focus on raising profitability rather than chase the global sales crown held by VW.
After fending off 2015 merger overtures by Fiat Chrysler with support from her board, GM boss Mary Barra agreed to target a 20% minimum return on invested capital and pay out more cash to shareholders.
PSA shares were up 4% at €19.83 as of 8.14am GMT.
GM shares closed 1.2% higher on Friday after Reuters reported a deal had been struck.
The two car makers, which already share some production in a European alliance, confirmed in February they were negotiating an outright acquisition of Opel by PSA, sparking concern over possible job cuts.
PSA said on Monday the targeted savings would come from purchasing and research and development — avoiding plant closures — as the Opel line-up is redeveloped with PSA technology and vehicle architectures.
An ambitious technical convergence push will begin with the Opel Corsa, Tavares said. The next version of the popular subcompact will be delayed by a year to 2020 as it goes back to the drawing board, according to presentation slides shown to analysts.
“Our planning teams are already working on that,” Tavares said when asked about the model. Another five PSAbased Opel models will follow by 2023.
For PSA, the Opel deal caps a stellar two-year recovery under Tavares, which avoided bankruptcy in 2014 by selling 14% stakes to the French state and China’s Dongfeng , to match a diluted Peugeot family holding. Tavares has since cut about 3,000 French assembly line jobs each year through voluntary departures to cut the wage bill to 11% of revenue from the 15% level he inherited, where Opel’s labour costs now stand.
PSA reiterated pledges to run Opel as a distinct German subsidiary and honour existing job guarantees to unions, which tend to cover production plans for existing models.
Beyond those horizons, however, the outlook for Opel plants may be less certain.
“Tavares wants to create healthy competition between the plants,” said one person involved in the talks. “They will be competing for workload.”
With Europe’s car market near a peak, some analysts predict the combined company may need to close plants in the next five years. Britain’s EU exit adds to the uncertainty over Vauxhall’s two UK plants.
But Tavares said exports could help fill Opel plants, adding that UK manufacturing brought opportunities as well as risks in the event of a “hard Brexit” in which Britain leaves the EU without a free-trade deal. “This may look to you a little bit romantic,” he conceded.
The transaction also sees GM retain most of Opel’s pensions deficit, estimated by analysts at $10bn. Earlier in the talks, the US car maker had sought to offload a larger share of the liabilities, sources said. Some smaller pension funds will be transferred to PSA, along with a €3bn payment to cover their full settlement, the companies said.
GM will take an accounting charge of $4bn-$4.5bn in relation to the deal.