Magna sweetens Opel bid, but not on GM concerns

July 28, 2009

Canadian-Austrian car parts maker Magna has sweetened its offer for General Motors’ main European arm, Opel, by pledging more of its own capital up-front as it tries to burn off Belgium-based financial investor RHJ International, which has GM’s favour so far. But the improved bid doesn’t appear to address the U.S. auto maker’s main concerns about future control. 

According to a German government source, Magna is now offering to inject 350 million euros immediately, with another 150 million to be raised through a convertible bond. Magna had originally offered just 100 million of its own capital up-front with 400 million to be raised in bonds. That compares with RHJ’s offer of an initial 175 million euros, plus another 100 million at the end of 2012.

Magna already has the preference of the German federal and state governments, which together have to provide 4.5 billion euros in loan guarantees, and of Opel’s 25,000-strong German workforce. But GM is reported by sources close to the talks to prefer RHJ’s bid because it includes a buy-back clause that could enable Detroit to regain control after Opel has been restructured and slimmed down.

Magna’s move appears designed to meet demands by Berlin that all suitors increase the share of their own capital invested in Opel to satisfy European Commission conditions for approving German state aid in the form of bridging finance and the loan guarantees. Whether it is enough to assuage Brussels is unknown, but the German government has presumably done its homework and sounded out the EU competition regulator. It may also be intended to win over the two German members of the five-man Opel Trust, which is responsible for the company in transition and would have the final say in a standoff between Berlin and GM. Reuters sources have said both German trustees are leaning against Magna’s plan. 

Whether the improved offer is enough to sway GM is doubtful, since the U.S. auto maker, having recently exited bankruptcy, appears concerned above all to preserve its own access to Opel’s technology,  retain an important say in decision-making at the German firm, and keep open the option of buying back a controlling stake.

Magna’s plan is less attractive on all these counts. Its strategy is based on expanding in the Russian market. Russia’s biggest bank, Sberbank, close to the Kremlin, would have a 27.5 percent stake equal to Magna’s in Opel. Furthermore, according to the Economist, a separate Opel Russia subsidiary would be created to assemble cars at plants of Russian automaker GAZ. The parent company would have only 70 percent of Opel Russia, with the rest held by Sberbank at a knock-down price.

GM is worried about intellectual property issues that could arise if Sberbank were to sell out to GAZ or if Magna were to enter into manufacturing agreements with other carmakers, the Economist says. It also fears it could lose control or even access to some technology Opel developed at great expense, such as clean diesel engines.

There may be a final flurry of negotiation before GM makes its mind up. But Magna’s latest gambit, on its own, doesn’t look like a game-changer.

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