Spyker Reaches Agreement with GM to Buy Saab

After several months of bidding, negotiations and uncertainty, General Motors (GM) has agreed to sell its Swedish brand Saab to Dutch Spyker Cars. The deal was announced yesterday by the two automakers, following the suspension of Spyker's shares. GM vice-president for corporate planning and alliances John Smith said in a statement that the announcement is "great news for Saab employees, dealers and suppliers, great news for millions of Saab customers and fans worldwide, and great news for GM," adding that all parties "worked very hard and creatively for a deal that would secure a sustainable future for this unique and iconic brand, and we're all happy for the positive outcome." The chief executive officer (CEO) of Spyker Victor Muller, who had been instrumental in negotiations, said that "Spyker Cars will provide Saab with the backing required to compete as a competitive global brand along with an entrepreneurial leadership team sensitive to the uniqueness, heritage and individuality of the Saab brand."

At present, GM and Spyker have signed a binding agreement on the transfer of the ownership of Saab, and a deal is expected to be finally completed by 15 February. Spyker will pay US$74 million for all the issued and outstanding shares in the brand from Saab Investering AB, a subsidiary of GM, which will be paid in two instalments—one of US$50 million to be paid at the completion of the transaction, and a further US$24 million to be paid by 15 July. GM will also retain redeemable preference shares worth US$326 million, representing less than a 1% voting right. A mandatory redemption date has been set for 31 December 2016, although Saab has the right to voluntarily ask for redemption prior to this point. The shares carry a 6% dividend entitlement from January 2012, rising to 12% from 1 July. Initially this will be added to the principal, but from 2013 this will be available in cash, although if insufficient cash is available, it will be added to the principal with a further penalty attached.

The deal will also change Spyker's name from Spyker Cars NV to Saab Spyker Cars NV.

Spyker added that the share purchase agreement would be subject to the execution of a 400-million-euro (US$564.2-million) loan from the European Investment Bank (EIB) to Saab. However, it added that the Swedish government had announced its approval of its guarantee for this loan and expected the European Commission to agree to it shortly.

Under the deal, Spyker's own share ownership structure will change with Tenaci Capital, a company owned by Muller, acquiring 4.6 million ordinary shares from Russian Vladimir Antonov, effectively disposing of his stake. Tenaci will also grant Spyker two loans—one amounting to US$25 million to pay part of the purchase price for Saab upon completion of the deal, while a second one for 57 million euro will repay all of Spyker's current loans to banks and financial institutions run by Antonov.

Outlook and Implications

While Spyker has had made great efforts over the past couple of months to complete a deal for Saab, having submitted three bids to GM during that time and taking part in many hours of difficult negotiations, it is now when the difficult process of bringing about a recovery of the Saab brand will take place. At present, the business is a loss-making concern that has not turned a profit for many years now, and much of the near-term work will need to be focused on achieving this if it is to have any hope of surviving. With no real experience of running a volume vehicle manufacturer, it will need to rely on the current incumbents, such as CEO Jan Åke Jonsson, to manage the business. This experience, combined with the flexibility of no longer being in the GM hierarchy, could promote far greater free thinking within the organisation to place the business on a far stronger footing.

Added to this is the seemingly strong portfolio of new models waiting in the wings. The most obvious of these has to be the new 9-5 which is not only appealing and uses the most up-to-date GM technology, but will replace a vehicle that was 12 years old. However, it also has the 9-4X sport utility vehicle (SUV) set to be launched in the next 12 months. This model will be something of a departure of the automaker being targeted at this segment (discounting the lambasted Chevrolet Trailblazer-based 9-7X which primarily focused on the North American market), and is underpinned by the same architecture as the Cadillac SR-X. The automaker is also said to have a replacement for its 9-3 in development ready for launch in 2012, also based on the latest GM technology. If all these models are launched on time, the automaker should be well positioned with the strongest vehicle it has had for a long time, if not ever.

However, there are still many questions that need to be confronted. One of these is likely to be the ongoing cash situation of Saab. In unaudited accounts of Saab issued by Spyker, it is said to have current assets of 547 million euro, of which 191 million euro is inventory and 198 million euro in cash, the latter likely to have come from its sale of assets to Beijing Automotive Industry Corp. (BAIC; see Sweden – China: 15 December 2009: GM Confirms Sale of Saab Intellectual Property to BAIC). Beyond this though, Spyker seems to have a provision in place for a further 150 million euro of back-up financing as well as the EIB loans, which seems to be a very small safety net in light of losses before interest, taxes, depreciation amounting to 300 million euro in 2008 and 400 million euro in 2009, according to Spyker.

Although it will no doubt be looking to earn cash from its ongoing operations, such as the sale of cars, this will depend on whether customers will actually do this given the publicity over the possible winding up of the business by GM and its acquisition by a relative unknown. Spyker has said that sales of 100,000 units per annum (upa) should make the automaker profitable, so it will need to try and make use of the underlying sympathy for the brand that has come to light from the public as negotiations have gone along, and turn it into cold, hard cash. However, its earnings from the vehicles it sells will also depend on the deal that it has cut with GM on the licensing of its technology. Adding to these cost pressures will be the eventual necessity to develop its own technology and vehicles in future in order to be an independent, standalone business.

With these factors in mind, it is certainly a brave move that Spyker has made taking on Saab, and it has certainly given some hope for the brand's future, rather than the culling that GM had planned. However, it remains to be seen whether this risk will pay off and the Swedish brand can enter the next decade in a far more positive position than it ended the last.