LEX Sometimes, poker players have to know when to throw in their hand. Fiat was right to pull out of talks on Friday about taking over General Motors’ European arm, including Germany’s Opel and Vauxhall in the UK. The Italian company could not reasonably accede to a last-minute request to provide €300m emergency funding for Opel without access to the carmaker’s books.
Its rival to be Opel’s rescuer, Magna International, by contrast, seems ready to up the ante. The Canadian auto parts group appeared close late on Friday to an agreement with GM that the two groups could present to the German government. Should a deal be done, Opel would edge away from the brink. Magna, as preferred bidder, gets the keys to the data room to finalise a formal bid while €1.5bn of bridge financing from the German government keeps Opel afloat. GM goes into Chapter 11 in the US with Opel in effect ringfenced.
But, if Magna and its Russian partner Sberbank do indeed provide the €300m short-term funding for Opel at which Fiat balked, that only increases their risks. Magna has pledged similar overall job losses and capacity reduction to Fiat but has less scope for synergies. It plans to divert some Opel capacity into contract manufacturing for other carmakers, of which it has some experience. But demand for this, in an industry already suffering from overcapacity, is unclear. Vauxhall’s Luton and Opel’s Antwerp plants seem no safer under Magna than under Fiat.
It is uncertain, too, how long it will take for Opel to strengthen its position in Russia and for that market to recover sufficiently to provide a significant boost to Opel demand – a big part of Magna’s plans.
Germany and GM – perhaps because Magna offered it a bigger residual Opel stake plus a managerial role – both seemed to favour Magna’s offer. They may get their way. But Opel may be weaker as a result.
BACKGROUND NEWS | |
|---|---|
Fiat pulled out of Friday’s German government-led talks on the future of Opel, saying that a request to it for emergency funding to help keep the General Motors-owned carmaker afloat would expose it to “extravagant risks.” The Italian carmaker did not specify who had made the request for additional funding, but according to an informed source it came from GM earlier this week. Fiat said the issues that emerged from its last round of negotiations on buying a stake in Opel on Tuesday and Wednesday had left it ”perplexed.” It said that it remained interested in a potential merger, but its sudden withdrawal throws another wrench into the talks on spinning off the Detroit company’s European business ahead of a US bankruptcy filing expected next Monday. Fiat said it had been asked to provide emergency financial assistance for Opel while Germany determines the exact timing and conditions of interim financing. However, it said it had not been granted full access to the carmaker’s financial records and so could not properly frame its merger proposal. |
To e-mail the Lex team confidentially click here
OR
To post public comments click here
The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here
_________________________________________
Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.
If you have questions or comments, please e-mail help@ft.com or call:
US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248
