Magna Gets Chinese Offer for Opel

Magna International (MGA - Analyst Report) has been approached by China ’s Geely Automobile Holdings for a partnership deal in the former’s newly acquired Opel unit. Last week, Magna and Russia ’s Sberbank acquired the Opel unit from General Motors. 

The deal allowed both the buyers to hold 55% stake in the unit. General Motors and the Opel workers together hold the remaining 45%. Talks held between the two automakers included the possibility of Geely taking a stake in Opel. However, Magna abstained from any such partnership, according to a source familiar with the deal. It is likely that Magna would not want to complicate its involvement in Opel as it already has a Russian partner. 

Magna and Sberbank are planning to manufacture Opel cars in Russia with the biggest automaker in the nation, Gaz Group, jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France ’s Renault). Chinese automakers have been expressing their interest in the western auto brands since the global downturn kicked in the automotive industry. 

China ’s market has been better off compared to the western markets. This may have tempted the country’s automakers to grab the opportunity of being global players by bidding for the ailing western brands. Recently, Geely Automotive has also submitted a concrete bid for Ford’s Swedish car unit, Volvo. Media reports have disclosed that Geely valued the unit at close to $2 billion. 

However, it may not be easier for China to attain a global position in the automotive industry. This is mainly because China has an increasingly important market for western brands. Thus, western automakers would have limited interest in losing their technology to the Chinese auto industry. 

We continue to recommend the shares of Magna as Neutral.

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