Peugeot Makes Big Bet on GM's Unprofitable European Brands--6th Update
March 06 2017 - 04:44PM
Dow Jones News
By Nick Kostov and Eric Sylvers
PARIS -- Peugeot struck a more than EUR2 billion ($2.1 billion)
deal to buy General Motors Co.'s unprofitable European operations,
a daring move by a French auto maker that is still early in its own
financial recovery.
The deal, announced Monday, ratchets up Peugeot's share of the
growing European car market to 16%, passing French rival Renault SA
for No. 2 in the region behind Volkswagen AG in terms of volume.
The company officially known as Groupe PSA SA acquires the storied
Opel and Vauxhall brands, Opel's auto-finance operation and access
to advanced technology that is costly for a regional player to
develop on its own.
It is the second major acquisition by a mass-market auto maker
in recent months, coming on the heels of a $2.3 billion purchase of
Mitsubishi Motor Corp. by Renault's alliance partner, Nissan Motor
Co., in 2016. Those deals come after little consolidation activity
among the world's auto makers, many of which say that more
partnerships are needed to meet a growing list of regulatory
mandates planed for markets across the globe.
For GM, the sale represents a retreat from a European market
that hasn't returned a profit since the 1990s. Executives said
Monday that the company can't keep pouring money into an operation
with limited upside.
The Detroit auto maker will receive EUR1.32 billion for the
automotive brands, EUR650 million of which is paid in cash and the
remainder in Peugeot share warrants. Peugeot and BNP Paribas SA
will team up to pay an additional EUR900 million for Opel's lending
arm.
GM faces charges of at least $4 billion, however. Much of that
charge is noncash and doesn't affect underlying operating results,
GM said. But GM will be liable for much of Opel's pension
obligations, which had been a major sticking point during
negotiations.
The U.S. auto maker said the deal would free up about $2 billion
in cash, which it plans to use for share buybacks. It shaves about
$1 billion in engineering costs.
Shares in Peugeot rose 2.7%, or 52 European cents, to close at
EUR19.58 in Paris on Monday. GM shares closed down 32 cents at
$37.91 in New York.
Opel's sale leaves GM with nearly no presence in the world's
third-largest vehicle market, but it is unclear if any of its major
rivals -- most of which make money in the region thanks to a sharp
rebound in industry sales in recent years -- will follow suit.
The acquisition is an aggressive move for Peugeot Chief
Executive Carlos Tavares, who made a name for himself over the past
three years as a cost-cutter, more intent on squeezing out savings
from existing operations than building volume.
Now he will have to deliver on the promises he made to French
and German politicians and unions to build a European champion that
is better equipped to ride out the market's next downturn. The
previous industry slump that followed the financial crisis nearly
bankrupted Peugeot and opened the door for Mr. Tavares to take the
helm.
He is betting he can steer a successful turnaround at GM's
European operations, similar to the project he put in place at
Peugeot about three years ago. Last week, he said he could expand
the Opel brand beyond its home region and analysts have speculated
that he could use it to make a push into the U.S.
To make the Opel purchase a success, analysts say Mr. Tavares
will have to wield the knife and cut capacity by closing factories
in Europe. He has promised to honor existing agreements between
Opel and its workers in Germany and elsewhere in Europe, but most
of those will run out in about five years.
But Mr. Tavares said Monday that he has no plans to close any
factories following the acquisition and that the promised cost
savings aren't based on eliminating jobs.
"Everybody will have a chance to reach the benchmark of
efficiency," Mr. Tavares said at a news conference. "We do not need
to shut down plants."
Also Monday, Mr. Tavares promised EUR1.7 billion in annual
savings in areas such as purchasing, manufacturing and research and
development by 2026 as Peugeot and Opel start to combine their
operations.
--
Mike Colias
contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com and Eric Sylvers at
eric.sylvers@wsj.com
(END) Dow Jones Newswires
March 06, 2017 17:29 ET (22:29 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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