Detroit-based General Motors Co. (NYSE: GM) agreed to sell its Opel/Vauxhall subsidiary and GM Financial’s European operations to French automaker PSA Group (EPA: UG) in a deal valued at €2.2 billion.
With the addition of Opel/Vauxhall, which generated revenue of €17.7 billion in 2016, PSA will become the second-largest automotive company in Europe, with a 17% market share.
PSA, together with BNP Paribas, will also acquire all of GM Financial’s European operations through a newly formed 50%/50% joint venture that will retain GM Financial’s current European platform and team.
“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. “We respect all that Opel/Vauxhall’s talented people have achieved as well as the company’s fine brands and strong heritage. We intend to manage PSA and Opel/Vauxhall capitalizing on their respective brand identities. Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner. We see this as a natural extension of our relationship and are eager to take it to the next level.”
PSA Group has three car brands, Peugeot, Citroën and DS, as well as a wide array of mobility and smart services under its Free2Move brand, with sales and revenue of €54 billion in 2016. The family business that preceded the current Peugeot company was founded in 1810. PSA is an early innovator in the field of autonomous and connected cars, with 2.3 million such vehicles worldwide. It is also involved in financing activities through Banque PSA Finance and automotive equipment via Faurecia.
“We are very pleased that together, GM, our valued colleagues at Opel/Vauxhall and PSA have created a new opportunity to enhance the long-term performance of our respective companies by building on the success of our prior alliance”, said Mary T. Barra, GM chairman and chief executive officer.
GM will record a special charge of $4.0-4.5 billion in connection with the deal.
The deal will allow substantial economies of scale and synergies in purchasing, manufacturing and R&D. Annual synergies of €1.7 billion are expected by 2026, of which a significant part is expected to be delivered by 2020, accelerating Opel/Vauxhall’s turnaround. Leveraging the successful partnership with GM, PSA expects Opel/Vauxhall to reach a recurring operating margin of 2% by 2020 and 6% by 2026, and to generate a positive operational free cash flow by 2020.
The deal is another step in GM’s ongoing work to transform the company, which has delivered three years of record performance and a strong 2017 outlook, and returned significant capital to shareholders.
By immediately improving EBIT, margins and free cash flow, and de-risking the balance sheet, the deal is expected to 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 will also participate in the future success of the combined entity through its ownership of warrants to purchase shares of PSA. GM and PSA also expect to collaborate in the further deployment of electrification technologies and existing supply agreements for Holden and certain Buick models will continue, and PSA may potentially source long-term supply of fuel cell systems from the GM/Honda joint venture.
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, Deutschland) 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.
The deal is subject to various closing conditions, including regulatory approvals and reorganizations, and is expected to close before the end of 2017.