Friday 29 May 2009

Magna agrees to purchase Vauxhall/Opel from GM

GM and Canadian car parts group, Magna International are close to an outline agreement for the sale of Vauxhall/Opel.

GM and the German Government are now trying to agree on a memorandum of understanding with Magna that would serve as the basis for bridge financing of €1.5bn (£1.3bn), as well as a solution that would protect Opel from creditors if GM files for Chapter 11 bankruptcy protection in the U.S - which should be confirmed by Monday 1st June in addition to a $30bn loan.

"A framework agreement has been reached. The goal is to work out as many of the details as possible before the meeting with (Chancellor Angela) Merkel in order to sign a memorandum of understanding today," a source told the Reuters news agency.

Germany's economy minister Karl-Theodor zu Guttenberg confirmed that all his attentions were now on reaching a deal with Magna, which has been asked to submit new proposals for Opel ahead of a meeting tonight. Juergen Reinholz, economy minister of German state Thuringia, where Opel has a plant, added “What’s crucial though is that GM and Magna reach an agreement. If that agreement isn’t reached, Opel has no choice but to file for insolvency.”

A meeting is now taking place between Chancellor Angela Merkel, the ministers involved and officials from the German states that contain GM plants to discuss whether to approve the deal.

Magna has said it will inject between €500m (£437m) and €700m (£612m) into Opel, assuming the deal gains government approval. It also plans to cut 2,500 jobs in Germany, about 10% of Opel's workforce in that country. Fiat had said it would cut 10,000 jobs.

It is not known what its plans for Vauxhall's plants in Luton and Ellesmere Port in the UK are but job cuts are very likely. However, the European Commission gathered members at a meeting yesterday to discuss concerns that job cuts resulting from the deal will be concentrated outside Germany.

A statement from the EC after the meeting said any state support should "not include non-commercial conditions concerning the location of investments and/or the geographic distribution of restructuring measures". Germany said the loan to Opel would benefit plants in all countries.

Under the agreement with Magna, GM would keep a 35% stake in the company, while 10% would be owned by Opel employees. Magna's bid is backed by Russia's state-run Sberbank and Oleg Deripaska's truck firm Gaz.

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