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IHS Global Insight Perspective
Fiat, Magna and Belgian-based investment company RHJ International have all submitted official bids for Opel following the passing of yesterday's deadline, although reports claim that this deadline has been extended.
The news confirms that Fiat and Magna are serious bidders for Opel and that there are few other credible offers on the table.
The respective bids will now be reviewed by GM and the German government and a preliminary decision on the winning bid is due next week.
As expected, Fiat and Austrian-Canadian automotive components company Magna have submitted offers for General Motors' (GM's) European unit comprising the Opel and Vauxhall brands, according to Reuters. They have been joined in the contest by the Belgian investment and holdings company RHJ International. As part of its bid Fiat has confirmed that Saab is not included in its offer. In addition, press reports coming out of Germany also claimed that the deadline had been extended, which would indicate there is at least one serious offer for Opel still being prepared. Die Welt reported on its website that German government ministers would meet tomorrow to discuss the respective offers for Opel, although GM's executives will ultimately make the decision. However, the German government will have to approve the decision as Opel is still dependent on 3.3 billion euro (US$4.7 billion) in loan guarantees to secure the company's working capital over the next 18 months. Additionally, the country's Labour Minister Olaf Scholz said that the preliminary decision must be made on the bidders by the beginning of next week.
It is possible that the German government and GM's management may want to make a preliminary announcement about the winning bidder in advance of any move by Opel's parent company to go into Chapter 11 administration. The 60-day deadline imposed by the U.S. presidential administration's auto task force runs out next week and it looks increasingly likely that GM is to file for bankruptcy protection. GM Europe's president has told Auto Motor und Sport magazine that he assumes Opel would not be involved in this filing but it would appear unwise to rule anything out at this stage. The German government is currently looking to set up a trustee network which would protect Opel's assets if GM does file for bankruptcy, with the government looking to help finalise a deal which would see the German banks provide 1.5 billion euro in bridging finance until the deal with the new investor/partner is finalised. In addition the four German states where the four Opel plants are based could also provide up 750 million euro in assistance.
Outlook and Implications
As was previously expected, Fiat and Magna have thrown their respective hats into the ring to be considered as potential partners/investors in Opel. The only surprise is the bid from the private equity arena through RHJ International. The enormous difficulties that Cerberus has experienced in its ownership of Chrysler, with the company now in administration less than two years after Cerberus took over, are likely to see GM and the German government treat an approach from a private equity investor with substantial caution. However, at least RHJ's experience and properties in the automotive component sector means the company has experience of the industry as well as potential synergies to bring the table.
It appears inevitable that the Magna and Fiat offers will be treated more seriously by both GM and the German government, but serious obstacles remain in the way of both bids. The Magna bid reportedly includes as part of its strategy an all-out assault on the Russian market. This would appear to depend on a rapid recovery in one of the markets worst hit by the global financial crisis, with sales for the first three months of 2009 down by 56.1%. The market is also a major market for GM's Chevrolet brand and this part of the operation is not included in the Opel deal. In addition the GAZ Group, which is one of the consortium partners, is in serious financial trouble of its own.Fiat would appear to be in the hot seat as the most credible potential partner for Opel. The Italian automaker already shares platform (Corsa and Punto) and powertrain technology (small and medium diesels) with GM, and there are obvious synergies to be gained. However, the new company will have to have massively reduced production capacity and headcount, something which will be hard to achieve in either Germany or Italy, while GM also looks highly unlikely to cede its Latin American operation, which ideally Fiat would want as part of the deal. In addition, Fiat has said it has no intention of providing any cash for the alliance, instead depending on loan guarantees and bridging finance from government sources. Either way, despite the potentially imminent GM bankruptcy and the parlous state of Opel's cash reserves, there appears to be a lot of work to complete before a deal is finalised, with government sources saying it could be until the fourth quarter of the year before Opel's fate is sealed, despite a preliminary announcement expected next week.