enes

GM sheds Europe's Opel, Vauxhall in $2.2B deal

Business News
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times
Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive
 

usatodayfrontGeneral Motors will sell its underperforming European operations to France's PSA Group in a deal valued at $2.2 billion, the two companies announced early Monday.

The deal will make PSA, which already has the Peugeot and Citroen brands, Europe's second-largest automaker behind Volkswagen. It will pick up GM's Vauxhall and Opel nameplates, which together produced about $1.8 billion in revenue last year. With the addition, PSA will have a European market share of 17%, the companies said.

“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum," said GM CEO Mary Barra in a statement.

It also relieves GM of longstanding problems when it comes to the profitability of its European operations at a time when the U.S. and China, the world's two largest auto markets, show more promise when it comes to generating higher-profit auto sales. Investors have driven GM's stock price $2.71 per share higher, or 7.6%, to $38.23 since Feb. 13, the day before the two companies confirmed they were in discussions

GM said it would take a charge of $4 billion to $4.5 billion, primarily in cash, in connection with the transaction. Additionally, most of Opel's European Union and United Kingdom pension plans, funded and unfunded, will remain GM's responsibility.

However, the announcement said the deal would free up approximately $2 billion, which GM said would be used to accelerate buybacks of the company's shares.

Subject to regulatory approvals, the transaction is expected to close before the end of 2017.

GM (GM) shares were down 1% at $37.83 in Monday afternoon trading.

It is unlikely that the sale was an easy decision for GM, based in Detroit. GM has long prided itself on its reach to all major automotive markets around the globe. Taking major brands targeting the European market off its map marks another ego blow to a company that for decades was the world's largest automaker. Other automakers like VW and Toyota have since eclipsed it.

These days, it's higher profits, not the amount produced, that carries more cache with investors. Also on the plus side, the deal gives both GM and Vauxhall a splashy announcement headed into this week's Geneva Motor Show, usually the top automotive event when it comes to car news and new models in Europe.

"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, in a statement.

He added that PSA intends to try to build on GM's former brands and that "we intend to manage PSA and Opel/Vauxhall capitalizing on their respective brand identities."

PSA, with BNP Paribas, will share GM Financial’s European operations through a joint venture.

Contributing: Brent Snavely, Detroit Free Press

Source: USA Today

Sign up via our free email subscription service to receive notifications when new information is available.