Battered car-makers rounding blind corner
(Update: This piece was written, as several commenters have pointed out, before GM clinched a sale of Saab to Spyker on January 26.)
By Quentin Carruthers
(Acquisitions Monthly) Automakers face a demand slump in Europe and the longer-term challenge of addressing climate change. Both pressures are expected to lead to further restructuring, consolidation and M&A activity.
The North American International Auto Show, held each January in Detroit, Michigan, is just coming to an end. Detroit is the hometown of America’s “Big Three” automobile makers – Ford, General Motors, and Chrysler – and the show constitutes one of the most important events in the industry’s calendar.
Touring the floor with a group of her fellow Congressmen was Nancy Pelosi, Speaker of the House of Representatives, who told reporters: “We came to listen, to learn, to observe, to measure, to judge what has happened to the investment that we made.”
US state investment includes US$60bn of government loans to support automotive assemblers, in return for control of GM and a minority stake in Chrysler, both of which came out of Chapter 11 bankruptcy proceedings in mid-2009. A further US$3.5bn has been used to support parts suppliers, and US$3bn to support car retailers.
Total state support equates to a loan of more than US$50,000 for each job in the manufacturing side of the industry, as calculated by Philip Wylie, director and automotives leader at restructuring adviser Houlihan Lokey.
The afternoon deal: Tiny Spyker wins a car
It’s been an auto-fueled day with investors on tenterhooks awaiting the now announced $400 million Spyker/Saab deal. Although Saab kept the spotlight, there is news from Chrysler, Opel, Porsche, Mitsubishi, Peugeot and Geely’s Volvo.
From Reuters, get the Saab deal wrap up here, along with a Saab factbox, timeline and profile of Spyker’s CEO Victor Muller. Find some additional facts about Spyker from The Swedish Wire here.
The Guardian has a great story on the mystique around the car brand called, “How did it all go wrong for Saab?”, and in a warning before the deal was announced, Fiat and Chrysler Chief Executive Sergio Marchionne said: “Marginal players will continue to be marginalized.”
Other auto news:
DealZone Daily
Auto maker General Motors is grappling with the future of its European units Saab and Opel after one sale collapsed and the other was pulled, targeting the bulk of its 9,000 job cuts at Opel’s German factories.
Bookseller Borders UK called in the administrators yesterday, adding its name to a growing list of failed British high street retailers. Administrator MCR is hoping to sell the business, bought by Valco (the private equity arm of turnaround specialist Hilco) in July this year, as a going concern.
Lachlan Murdoch, son of News Corp chief executive Rupert Murdoch, sold some $27.6 million of his shares in his father’s company as he bought 50 percent of Daily Mail & General Trust’s radio operations in Australia.
For the latest deals news from Reuters, click here.
And here’s the top stories from elsewhere (some external links may require subscription):
Concerns over Dubai World’s debt dominated the news as stocks around the world tumbled and markets struggled to get to grips with the extent of the problem in the absence of solid information, says the Financial Times.
Siemens AG’s hearing aids business, valued at up to 3 billion euros, is drawing interest from private equity firms including KKR and BC Partners, Bloomberg writes.
Next in M&A: the WordPress Hug?
Maybe it’s time to add a new weapon to the old M&A arsenal of poison pills, dawn raids, and white knights — the corporate blog. You could call it the WordPress Hug.
Late on Monday, Cisco’s Ned Hooper used the company’s blog to insist it had offered “a very good price” for Tandberg, after some shareholders of the Norwegian videoconferencing company said the price was too low. (See his full post here.)
The “Driving Conversations” blog of General Motors Europe has also been a source of news on the long-running (and now abandoned) talks to sell Opel, hosting posts from GM’s chief negotiator, John Smith. (See some of his posts on the topic here.)
So could blogging become a major channel of communication on M&A transactions? Big corporations have enthusiastically adopted it for other uses- for example, “Randy’s Journal”, a Boeing blog, has a following in the industry and among aeroplane enthusiasts.
But it is hard to believe this trend would be welcomed by some financial regulators — like the UK’s Takeover Panel, which banned advertising during takeover battles more than 20 years ago.
GM’s Opel Surprise
“You wonder if your chance will ever come or if you’re stuck in square one.”
When I heard about GM keeping its Opel unit, that line from a song by British band Coldplay came to my mind. After all those long nights of paltering on job cuts and money, GM was having a change of heart.
The sale of Opel to a group led by Canadian car parts maker Magna — announced in September — was widely considered a done deal. Turns out, it was less done than more. Citing improving business conditions and the strategic importance of Opel, GM decided it would be better to alienate the German government that provided it with a loan to sweeten the sale of the unit to Magna than to lose the business. GM said it would repay the rest of the 1.5 billion euro ($2.2 billion) bridge loan if Berlin requested. The loan helped save Opel from being sucked into GM’s dip into bankruptcy this year.
“This is a black day for Opel,” an employee, who declined to be named, said in front of the company’s headquarters in Ruesselsheim, near Frankfurt. German government officials were said to be seething, as were the Russians, who’s Sperbank had tied up with Magna to do the deal. But not all of Europe was angry. British unions welcomed the news. “It is fantastic news for the UK and right that General Motors does not break up its family and instead retains ownership of (Opel sister brand) Vauxhall,” said Tony Woodley, joint general secretary of the Unite union.
Analysts say big questions remain about what GM will do with Opel when consumer-friendly car scrapping schemes expire. At that point, will it be back to square one?
Magnum’s Opel
General Motors may soon get the long-delayed green light to sign over carmaker Opel to Canada’s Magna. EU antitrust regulators have no plans to block Magna’s acquisition of GM’s European arm, a European Commission spokesman said in Brussels, easing fears the transaction could run out of gas in debate over German state aid to the mostly German-staffed company.
Magna hopes to conclude the deal within weeks of signing a contract. That should be that, right? Well, hardly. For one thing, Spanish workers at Opel’s plant at Figueruelas have voted to strike in protest at cuts included in the Magna package. And European politicians say GM and the Opel Trust should have the option of reopening the bidding process.
But the jilted other bidder, RHJ, says it is no longer interested in doing a deal, so going back to the auction block is probably a nonstarter. And with European auto titan Volkswagen saying sales will likely stay stalled next year, the political will to get a deal done is about all Opel has going for it right now. The company is poised to run out of cash by mid-January.
from Commentaries:
Should Volkswagen demand a Magna Carta?
Magna International seems to be taking seriously threats from Volkswagen to pull its business following the Canadian car parts maker's Opel victory.
Magna's co-CEO Donald Walker is saying that after talking to them, most of his other customers are happy that the car parts group -- which along with Russian backer Sberbank is buying a 55 percent shareholding in GM's Opel -- is able to protect their technologies.
Apparently VW is still unconvinced, so Magna will "finalising the internal procedures" and will have more talks with the German carmaker.
Walker is also stressing that Magna is not looking to compete with its clients but is simply aiming to get a good return on its investment in Opel, reiterating that Magna will remain a parts company.
There seems little doubt that Magna can manage potential conflicts, after all it already builds cars for BMW, Chrysler and Mercedes as well as making parts for Toyota, Ford and VW.
But to say Magna won't be competing with other carmakers once it starts building Opel cars is stretching the point. Why else would you buy Opel if it wasn't to take market share from VW and others?
from Commentaries:
Is Goldman’s Chinese convertible really a taxi?
The number of London's trademark black taxis booked and waiting outside the European headquarters of Goldman Sachs -- meters running -- was once used by some as a barometer of the health of London's investment banking business.
When times were good, the queue was long and it was impossible for anyone else in the vicinity to hail a cab. But when the fees dried up, or markets turned, the cabbies who'd been at Goldman's beck and call suddenly had to find new customers.
Last year, Goldman was reported to have stopped free taxis home for staff working in the office after 9pm, extending this to 10pm.
Now it looks as though taxis may be in vogue again at Goldman, at least indirectly.
Goldman Sachs Capital Partners -- is that a taxi in the picture on the website? -- now appears to be following in the tracks of the maker of many of London's black cabs by cosying up to Geely Automotive -- China's 10th largest vehicle maker.
For Manganese Bronze -- which has made more than 100,000 London taxis at its Coventry plant since 1948 -- it was a case of turning to Geely for help and selling it a stake as well as entering a joint venture.
But in this case, it is Goldman that is providing the money -- buying about $250 million of convertible bonds and warrants. Geely will use the proceeds to ratchet up its production.
from Commentaries:
China picks European cars off scrapheap
Chinese carmakers are seeking to step into the gaps left by U.S. companies in Europe -- but while acquisitions may give them access to badly-needed technical know-how, global brands and exposure to new markets, the question is whether they have learnt from past failures.
With China now the world's largest car market, it's no surprise that Chinese carmakers -- which have few if any really solid brands within their home market -- want to start making more of a mark.
In theory, foreign acquisitions offer a quick way to do so. Meanwhile the credit crunch has thrown world-renowned but now distressed car marques such as Volvo, Opel or Saab onto the block at what look like rock-bottom prices.
The worry is that Chinese carmakers haven't always found it plain sailing abroad. SAIC Motor Corp is still feeling the pain of buying into Ssangyong Motor Co of Korea. Ssangyong has struggled to compete as South Korea's smallest carmaker, failing to develop new models and running out of cash. A debt-for-equity swap threatens to slash the Chinese company's holding in the South Korean carmaker from just over 50 percent to around 10.
Chinese companies have had more success when they have simply acquired technology and taken it back to China. SAIC had much more success when it bought Britain's MG Rover. In that case, SAIC closed most of the UK manufacturing and used the know-how to launch a mid-range sedan called the Roewe. This has proved successful in China.
It looks as if Chinese manufacturers are trying to emulate SAIC's Rover experiment rather than its Ssangyong adventure.
Although Chinese carmakers looked at Opel, they backed away from trying to buy it outright. Geely Automotive has now stepped forward as a possible partner for Opel's new owner, Canadian car company Magna. But it looks as if its role may be more as that of a supplier of manufacturing capacity than an outright owner of the brand.
The Car Business: Self-loathing and Chinese Takeaways
Nobody hates cars as much as the car industry does these days. The business is crippling some of its biggest players and behold the dearth of industry names queuing up to buy other automakers.
Opel in Germany is being sold yet are Volkswagen, Porsche, BMW or Daimler anywhere to be found? Spot the empty parking lot.
Without the Chinese, auto sector M&A right now is about as exciting as a 1981 Yugo.
Some makers still have money though, so what has everybody racing to get away?
Bad experiences, in part.
The last really big deal where two car companies merged was DaimlerChrysler in 1998. It’s best remembered this way: Spent a lot of dimes, did a lot of crying. Disaster and divorce.
A great article written years after the deal revealed telltale signs of the troubles in store for that marriage when even the order of the name – which should go first – threatened to break up the talks.
Saab WILL survive. Spyker purchased Saab from GM last month…. come on guys GET WITH IT!!! Embarrassing.