France's Peugeot-Citroen group buys Germany's Opel

Posted: 6th March 2017 08:24

PSA Group, the maker of Peugeot and Citroen cars, agreed to buy General Motors Co.'s ( GM ) Opel unit in a transaction valued at 2.2 billion euros. The deal includes the Germany-based Opel, its U.K. nameplate Vauxhall, as well as the GM Financial's European operations.

The combination is expected to generate annual savings of 1.7 billion euros by 2026, with the loss-making Opel unit generating an operating profit margin of 2 percent by 2020 and 6 percent by 2026, GM and PSA Group said.

GM noted that it will take a primarily non-cash special charge of $4.0 billion-$4.5 billion in connection with the transaction.

Opel/Vauxhall automotive operations will be acquired by PSA for 1.3 billion euros. 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 billion euros.

The transaction value for PSA, including Opel/Vauxhall and 50% of GM Financial's European operations, will be 1.8 billion euros.

By immediately improving EBIT-adjusted, 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 said.

In connection with this transaction, GM or its affiliates will subscribe warrants for 0.65 billion euros. 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 euros. Based on a reference price of 17.34 euros for the PSA share, the warrants correspond to 39.7 million shares of PSA, or 4.2% of its fully diluted share capital.

GM said it 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.

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 PSA3.0 billion euros for full settlement of transferred pension obligations.

The transaction is subject to various closing conditions, including regulatory approvals and reorganizations, and is expected to close before the end of 2017.

The issuance of the warrants is subject to the vote of shareholders at PSA's General Meeting of May 10th, 2017.

First Published on Nasdaq

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