France’s PSA Group Buys Opel From General Motors Challenging European Market Leader Volkswagen

France’s PSA Group has agreed to buy Opel from General Motors (GM) in a deal valuing the business at 2.2 billion euros (US$2.3 billion), creating a new European car giant to challenge market leader Volkswagen. The disposal seals GM’s exit from Europe and ends a relationship dating back to the 1920s.

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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 3 years and 6% by 2026…using lessons from the French group’s own recovery. Opel recently recorded its 16th consecutive full-year loss…By acquiring Opel, PSA leapfrogs French rival Renault to become Europe’s second-ranked carmaker by sales, with a 16% market share to VW’s 24%…

GM will receive 1.32 billion euros for the Opel manufacturing business in the form of 650 million euros in cash and 670 million in PSA share warrants. An additional 900 million euros will be paid by the Paris-based carmaker and BNP Paribas for Opel’s financing arm, to be operated jointly and consolidated by the French bank….

The PSA warrants, exercisable in five years and maturing in nine, provide a financial incentive for GM to continue cooperating. The U.S. carmaker has agreed to sell the shares received upon exercise, keeping no stake in PSA.

The Opel sale cuts GM’s cash balance requirement by US$2 billion, the company said, allowing it to accelerate share repurchases. GM will also take a charge of US$4 billion to US$4.5 billion on the deal, expected to close in late 2017.

The transaction also sees GM retain most of Opel’s pensions deficit, estimated by analysts at US$10 billion. Earlier in the talks, the U.S. carmaker had sought to offload a larger share of the liabilities, sources said. Some smaller pension funds will be transferred to PSA, along with a 3 billion euro payment to cover their full settlement, the companies said on Monday.

The Opel deal caps a stellar two-year recovery for PSA, which avoided bankruptcy in 2014 by selling 14 per cent stakes to the French state and China’s Dongfeng, matching the Peugeot family’s diluted holding…