General Motors was given sixty days by the U.S. government to cut costs, streamline its operations further, and prove that it’s a company worth investing in. Otherwise, the government is going to force a “structured bankruptcy.” GM is looking at selling its European operations as part of the plan to cut costs and increase cash flow.
As of right now, there are up to seven investors- including several sovereign wealth fund and at least one Asia-based private equity firm- that have expressed interest in taking a stake in GM’s European operations. Opel and its sister brand, Vauxhall, form the core of GM’s European operations. Commerzbank, GM’s advisor on the Opel sale, is preparing a memorandum that could be sent to potential buyers as early as this week.
The talks between GM and the potential investors are still at a very early stage, but a senior GM executive said that the parties were working on “a fairly fast timeline.” GM would like to have a secure pledge from an investor within the sixty day deadline imposed by the U.S. government.
With GM on a government-supported lifeline, the company has decided that it would be willing to sell a majority stake of its European operations. Fritz Henderson, GM’s new CEO who replaced Rick Wagoner, told the Financial Times that GM could end up with a minority stake. Any investor would be likely to buy a majority stake in a newly formed holding company that includes: Opel, Vauxhall, and its other European operations.
To make the deal more enticing, Angela Merkel, German chancellor, said that the German government might offer loan guarantees to an investor. She did say that Germany would not be taking a stake in Opel. One option using state loan guarantees is a leveraged buyout, in which case the investor would use the loan guarantees to fund most of the purchase price.
GM Europe has said that it had received “credible, serious, and promising interest in working with us on a third-party investor basis.” The discussions were said to be “exploratory,” as there are several issues that need to be resolved. The issues include the valuation of GM Europe’s assets and its future relationship with U.S. parent GM.
Source: Financial Times