IHS Global Insight Perspective | |
Significance | Despite it being widely anticipated that GM's board would make a decision on the winning bidder for Opel on Friday, the company failed to sign a deal, leaving the fate of its European unit still open. Opel labour leader Klaus Franz has expressed his anger at GM's inaction and has said Opel will strike if the Magna bid is not accepted. |
Implications | The delay is hugely embarrassing for the German government which wants the Opel issue to be resolved in advance of the 27 September general election. GM has asked for more information from the German government to clarify the level of funding available to the RHJ bid. |
Outlook | The government has staked much on backing the Magna bid and GM's continued refusal to accept it means that the future of Opel and Vauxhall's ten European plants is still very much open. Talks will continue this week and with Opel's unions threatening to strike, an accord must be reached soon as industrial action will do nothing to secure the company's future. |
The much anticipated decision on Opel's future failed to come to fruition despite the General Motors (GM) board meeting on Friday (21 August) with a view to deciding on the winner between the two remaining offers from car component giant Magna and industrial holding company RHJ International. According to a Reuters report, sources close to the decision-making process claimed that GM had asked for more information from the German government regarding the state financing available to complete the deal. Previously the 4.5 billion euro (US$6.4 billion) of loan guarantees on the table from the German government had been linked solely with the Magna bid, due to the German government's unwillingness to countenance the RHJ bid. However, GM has asked the German government whether similar funding arrangements will be available to the RHJ bid. The German government has put massive pressure on GM to accept the Magna bid despite there being fundamental stumbling blocks between GM and Magna, namely Magna's ownership and access to Opel's intellectual property and the company's plans for an all-out assault on the Russian market using Opel technology. The delay in the GM board making a final decision on Opel's future is increasingly embarrassing for the German government headed by Chancellor Angela Merkel (see Germany: 12 August 2009: German Chancellor to Step In to Push Through Magna Bid for Opel). The government has staked its reputation to an extent on backing the Magna bid and the fate of Opel has become an issue that has loomed large over the German election that is set to take place on 27 September. Talks are set to continue between government officials and the GM management figures running the bidding process, including GM's lead negotiator John Smith.
The lack of a decision has done nothing to make the position of the German politicians up for re-election at the end of next month any more comfortable. Speaking on German television channel ZDF yesterday, Merkel expressed her disappointment that a deal had not been finalised. She said, "I regret that a final decision wasn't made, but I hope it will happen soon, because both for the workers and the economic situation at Opel, we urgently need a decision." She also speculated that GM's senior management in the United States is less comfortable with the shareholding structure offered by the Magna bid, with RHJ allowing GM to retain a larger shareholding. She added, "The conflict of interest could be that we think Magna has made a very good offer... which makes GM a minority shareholder in the whole set-up, and there may be voices at GM... who'd prefer that this minority shareholding wasn't so marked." German politicians have been angered by what they see as GM's delaying tactics. Jürgen Rüttgers, premier of North Rhine-Westphalia, Germany's most populous state and the location of Opel's Bochum works, issued a statement saying the delay was intolerable. "The United States government now shares responsibility for finding a way past GM's leadership weakness and helping us finally to reach a sustainable decision," he said. The head of Opel's workers council Klaus Franz has said that there is no more goodwill left towards GM's management over the issue. He said, "Our patience is absolutely at an end." He went on to threaten "spectacular action" if there was no resolution found this week, although interestingly this apparently may not include strike action.
Outlook and Implications
If no deal is agreed with GM's senior management in the United States over Opel, then bankruptcy remains a very real option for one of world's oldest carmakers, which began operations in 1899 (see Germany - United States: 4 August 2009: Bankruptcy Still an Option for Opel as GM Board Meets to Discuss Bids). However, the GM board and its backers in the U.S. Treasury cannot unilaterally approve a deal for Opel's new ownership structure as any deal has to be given the green light by the board of trustees that is currently administering Opel's affairs. The board includes two German government officials and is currently running the company using a separate 1.5 billion euro of bridging finance provided by the German federal government. Under the proposed terms of the Magna deal, Magna and Sberbank would each own 27.5% of the company, Opel's employees would hold 10% and GM would hold the remaining 35%. Merkel claims this is a stumbling block for GM's management but it is clear that the main issue that GM has with the Magna bid remains the company's desire to own or at least have unrestricted use of Opel's intellectual property (see Europe: 7 August 2009: GM Says Still Major Issues With Opel's Magna Bid; Decision Not Imminent). GM prefers the RHJ bid because it has a "simpler" structure and there is no doubt that the larger shareholding it will retain in Opel is also a significant point in its favour. However, the German political establishment remains vehemently opposed to the RHJ bid as a result of its links to private equity company Ripplewood Holdings. One thing that is certain is that wide-scale industrial action must be avoided at all costs at what is a very delicate stage in the sale process.