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GM Sells Stake in Ally, Keeps Peugeot Alliance

F HMC GM FUJHY

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General Motors Company (GM - Analyst Report) has sold its entire stake in Ally Financial Inc. and disclosed plans to divest its stake in PSA Peugeot Citroen. The automaker held 8.5% equity stake in Ally Financial and 7% in PSA Peugeot.

General Motors sold Ally Financial’s shares for $0.9 billion. The transaction will result in a gain of $0.5 billion in the fourth quarter of 2013. The capital release will boost the financial flexibility of General Motors. Moreover, Ally Financial will continue to provide financing to the U.S.-based customers and dealers of General Motors.

In the second batch of equity sell off, General Motors will sell the 24.8 million shares of PSA Peugeot that it holds currently to institutional investors via private placement. The company had acquired these shares in Mar 2012 to assist PSA Peugeot in raising capital during the formation of the strategic alliance between the two companies. General Motors believes that PSA Peugeot does not need its financial support any longer.

However, the equity divestiture does not affect the strategic alliance between the two carmakers. PSA Peugeot and General Motors will continue to develop two products based on PSA platforms: the B-MPV multi-purpose vehicle and C-CUV crossover-utility vehicle programs. They will also work together to develop new light commercial vehicle B-segment products based on a PSA new generation platform.

The GM España plant in Zaragoza will be used to manufacture the B-MPVs for both companies, while the French PSA plant in Sochaux will produce the C-CUVs. The alliance projects the launch of their first car to take place in 2016.

The synergies from the strategic alliance are estimated to be around $1.2 billion by 2018. PSA Peugeot and General Motors will enjoy equal share of the synergies.

Additionally, the two companies announced that they will amend some terms of the alliance, including grounds for termination and simplification of joint governance.

General Motors currently carries a Zacks Rank #3 (Hold). Better-ranked major automobile stocks worth considering are Fuji Heavy Industries Ltd. (FUJHY), Ford Motor Co. (F - Analyst Report) and Honda Motor Co., Ltd. (HMC - Analyst Report). All these stocks hold a Zacks Rank #2 (Buy).

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