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General Motors (GM) to Sell European Business for $2.3B
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General Motors Company (GM - Free Report) has recently inked an agreement with French automaker, PSA Group, for the sale of its Opel/Vauxhall subsidiary and GM Financial’s European operations. The transaction, valued at €2.2 billion (around $2.3 billion), is expected to close in end 2017, subject to regulatory approval and customary closing conditions.
Terms of the Agreement
The Opel/Vauxhall business has been valued at €1.3 billion which will be acquired by PSA Group. The GM Financial’s European business has been valued at €0.9 billion, 0.8 times the pro forma book value, will be jointly acquired by PSA Group and BNP Paribas. The two companies will acquire the business under a newly formed 50-50 joint venture.
Per the agreement, General Motors or its affiliates will subscribe warrants for €0.65 billion with a nine-year maturity. The warrants are exercisable five years after the issue date. The warrants correspond to 39.7 million shares of PSA Group, or 4.2% of its fully diluted share capital, based on a 20-day volume-weighted average share price as of Feb13. However, General Motors will not have any voting rights or governance and has agreed to sell the shares within 35 days of the exercise of the warrants.
Obligations related to the pension plans of the Opel/Vauxhall business in Europe and U.K., with the exception of German Actives Plan and selected smaller plans, will remain with General Motors. The German Actives Plan and other the selected smaller plans will be transferred to PSA Group, for which General Motors will pay €3 billion.
In relation to the deal, General Motors will take a largely non-cash special charge of $4−$4.5 billion.
Benefits to General Motors
General Motors’ Opel/Vauxhall business has remained unprofitable over the last few years. With the sale of its European businesses, the company intends to focus on its core automotive business and development of new technologies. The company will retain its engineering centre in Torino, Italy.
Through the sale, the company is working toward its transformation goals. The company has delivered excellent performance in terms of sales over the last three years and has projected a strong outlook for 2017. Moreover, General Motors will be increasing its share buybacks, with an aim to repurchase shares worth $5 billion this year, as part of its commitment to repurchase $8 billion worth shares.
Benefits to PSA Group
On the completion of the transaction, PSA Group will become the second largest automotive company in Europe, with an expected 17% market share, after Volkswagen . The company expects significant economies of scale as well as synergies in purchasing, production and research and development. Annual synergies of €1.7 billion are expected by 2026, with a large part achieved by 2020. The company also expects Opel/Vauxhall to generate positive operational free cash flow by 2020.
PSA Group will own over 12 Opel and Vauxhall production facilities which employ roughly 40,000 persons. Though management has not specified any layoffs but apprehensions remain as the company is looking to reduce costs. PSA Group stated that cost cuts are expected through improved logistics, quality, energy, maintenance and security.
Price Performance
General Motors underperformed the Zacks categorized Automotive-Domestic industry in the last three months. Share price of the company increased 4.4% over the period while the industry saw a 7.1% increase.
Zacks Rank & Other Key Picks
General Motors currently carries a Zacks Rank #2 (Buy).
Allison Transmission has a long-term growth rate of 11%.
Fiat has an expected long-term growth rate of 21.70%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
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General Motors (GM) to Sell European Business for $2.3B
General Motors Company (GM - Free Report) has recently inked an agreement with French automaker, PSA Group, for the sale of its Opel/Vauxhall subsidiary and GM Financial’s European operations. The transaction, valued at €2.2 billion (around $2.3 billion), is expected to close in end 2017, subject to regulatory approval and customary closing conditions.
Terms of the Agreement
The Opel/Vauxhall business has been valued at €1.3 billion which will be acquired by PSA Group. The GM Financial’s European business has been valued at €0.9 billion, 0.8 times the pro forma book value, will be jointly acquired by PSA Group and BNP Paribas. The two companies will acquire the business under a newly formed 50-50 joint venture.
Per the agreement, General Motors or its affiliates will subscribe warrants for €0.65 billion with a nine-year maturity. The warrants are exercisable five years after the issue date. The warrants correspond to 39.7 million shares of PSA Group, or 4.2% of its fully diluted share capital, based on a 20-day volume-weighted average share price as of Feb13. However, General Motors will not have any voting rights or governance and has agreed to sell the shares within 35 days of the exercise of the warrants.
Obligations related to the pension plans of the Opel/Vauxhall business in Europe and U.K., with the exception of German Actives Plan and selected smaller plans, will remain with General Motors. The German Actives Plan and other the selected smaller plans will be transferred to PSA Group, for which General Motors will pay €3 billion.
In relation to the deal, General Motors will take a largely non-cash special charge of $4−$4.5 billion.
Benefits to General Motors
General Motors’ Opel/Vauxhall business has remained unprofitable over the last few years. With the sale of its European businesses, the company intends to focus on its core automotive business and development of new technologies. The company will retain its engineering centre in Torino, Italy.
Through the sale, the company is working toward its transformation goals. The company has delivered excellent performance in terms of sales over the last three years and has projected a strong outlook for 2017. Moreover, General Motors will be increasing its share buybacks, with an aim to repurchase shares worth $5 billion this year, as part of its commitment to repurchase $8 billion worth shares.
Benefits to PSA Group
On the completion of the transaction, PSA Group will become the second largest automotive company in Europe, with an expected 17% market share, after Volkswagen . The company expects significant economies of scale as well as synergies in purchasing, production and research and development. Annual synergies of €1.7 billion are expected by 2026, with a large part achieved by 2020. The company also expects Opel/Vauxhall to generate positive operational free cash flow by 2020.
PSA Group will own over 12 Opel and Vauxhall production facilities which employ roughly 40,000 persons. Though management has not specified any layoffs but apprehensions remain as the company is looking to reduce costs. PSA Group stated that cost cuts are expected through improved logistics, quality, energy, maintenance and security.
Price Performance
General Motors underperformed the Zacks categorized Automotive-Domestic industry in the last three months. Share price of the company increased 4.4% over the period while the industry saw a 7.1% increase.
Zacks Rank & Other Key Picks
General Motors currently carries a Zacks Rank #2 (Buy).
Other favorably placed companies in the auto space include Allison Transmission Holdings, Inc. (ALSN - Free Report) and Fiat Chrysler Automobiles N.V. . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Allison Transmission has a long-term growth rate of 11%.
Fiat has an expected long-term growth rate of 21.70%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>