Moment of truth for Magna-Sberbank Opel bid as new GM demand stalls talks

27 May, 2009 17:57 / Updated 16 years ago

Negotiations between GM and bidders for its Opel operations in Europe stalled during late Wednesday night discussions hosted by the German Chancellor, as workers have back the Magna-Sberbank bid.

During the discussions GM requested an additional $415 million, in a move which has seen one potential bidder, RHJ Holdings, dismissed.

The German Finance Minister Peer Steinbrueck, expressed surprise at the new demands from GM for its European operations, adding that this had stalled talks

"I can only confirm that it was surprising that GM came with more significant cash needs which kept us busy during the night."

When asked about how much was being requested by GM, Steinbruck outlined the sum, and confirmed that one bidder was no longer in the running.

"It is all together about 300 million euro – equivalent to 418 million US dollars – which need to be covered very quickly, and that has extended this night very significantly. Further request were made to the two investors which are still being considered. There is no need to keep secret that one investor which is not considered any more is Ripplewood, FIAT and Magna remain in the game."

Opel stalled after its parent, General Motors, said it had to sell its German based subsidiary or face bankruptcy. Anxious about the company’s future, the German government will decide who will be at Opel’s wheel.

The bidders are Italy’s Fiat, RHJ International, Beijing Autumotive Industry Corporation and the alliance of Canadian car maker Magna, Russian state owned-lender Sberbank, and the Gaz auto plant. Experts such as Reiner Hartmann from the Association of European Business in Russia say the latter is in a pole position.

“It will benefit both sides. It will first of all open for Sberbank an opportunity for very solid investment in a growing industry in Europe. On the other side it would be good for Russian automobile manufacturing, in particular Gaz to gains some technologies it desperately needs in order to upgrade its product lines.”

Fiat, the main competitor of the Magna-Sberbank alliance, says it would have to cut a fifth of Opel’s staff across Europe and close one plant. But it would need less money from the German government. The Magna-Sberbank offer looks lucrative to both German politicians and Opel’s trade union, as the bidder promises to save most jobs, and add production, at a plant in Central Russia.

But analysts are skeptical about a joint venture with the debt-laden Gaz group. Elena Shakhnova, Analyst at VTB Capital says combining two loss-making carmakers carries significant risks.

“The main disadvantage of the Russian-Canadian consortium is that they are underestimating the risks associated with entering this new market. Magna of course knows the market well, but there’s a risk that in an attempt to overbid Fiat they are putting too ambitious targets ahead, and they will not be able to achieve it.”

Magna plans to inject up to 700 million euro into Opel. However, if the deal comes through, Magna would only have a 20% stake in Opel next to Sberbank’s 35%. GM will retain another 35% and 10% will be in the hands of workers.

In preparation for the sale, the assets of Opel and its sister company Vauxhall are being consolidated under the Opel unit. The decision by the German government is expected anytime soon as GM faces a deadline to restructure before June 1 or drive into bankruptcy.