GM negotiator slams Opel bidder’s Russian connection

August 6, 2009

The GM blogger is at it again. John Smith, General Motors’ group vice-president and chief negotiator for the sale of its stake in Opel/Vauxhall, lays into the bid by Canadian-Austrian car parts maker Magna — especially the Russian Connection — in his latest update on the state of the talks.

He also pours cold water on happy talk from German politicians of an early decision in favour of Magna, backed by the German authorities, rather than rival Belgium-based financial investor RHJ International, which clearly still has GM’s preference.

What is most striking about Smith’s blog post is the withering tone of his comments on Magna’s partnership with Russia’s Sberbank in a joint bid, and of the opacity surrounding the Russian leg of the proposed deal. Here are some choice morsels:

As noted in my prior blog post, the Magna proposal is more complex, owing to the inclusion of Russia and a third, Russian-based investor.  We started the week with about 30 issues to resolve, including NewOpel involvement with Chevrolet in Russia, intellectual property transfer rights in Russia, advanced technology access, product development responsibilities, minority shareholder rights and other items.

I can report some progress, resolving perhaps one-third of the issues during a first day of talks.  However, the difficulties of getting to ‘yes’ with three parties in the room were very much in evidence yesterday. Little progress was made in whittling down the outstanding issues, in part reflecting the return of some issues that we previously considered to be resolved.

That suggests that Kremlin-backed Sberbank has resurrected previous demands for de facto control of NewOpel’s Russian operations.  Smith then goes further and expounds his suspicion that the Russian Connection is a way of sucking Opel’s high technology in engines and transmissions away to Russia.

One key point for GM is intellectual property, and this transaction should not become a pipeline, shipping valuable intellectual property to destinations unknown.

The post seems to be an effort to undermine the main arguments of Magna’s supporters in the German federal and state governments, Opel’s workforce and the Social Democratic Party. Contrary to their contention, he says, the offers are substantially similar in terms of product, manufacturing and purchasing plans. RHJ’s would be easier to execute and require less government money, and both bidders have the same global market access. Anyway, Smith adds, Opel has always done best when it concentrated on its home market. He also notes that an (unpublished) evaluation by the German government’s advisers, Lazard, left “a strong impression that the RHJI bid was superior”.

Finally, he seeks to demolish the argument that the Magna bid is superior because it would give Opel greater independence from GM.

In truth, Opel needs a close connection to a high-volume, global automobile company to take full advantage of related economies of scale as it will not survive for very long on its own.  One has to look only as far as the new Insignia and forthcoming new Astra to see drivable dividends from today’s everyday product development relationship with General Motors.

Smith’s blog post certainly does not read as if GM is moving towards a deal with Magna/Sberbank, whether this week or in a month of Sundays. Of course there must be a degree of megaphone negotiation involved, but the three yardsticks he sets for lenders to judge the offers — the amount of government money required; the degree of ‘independence’ truly in Opel’s long-term interest; and the question of the focus of the NewOpel group — suggest GM may still be steering towards a head-to-head collision with the German government.



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