UPDATE:Germany Delays Opel Aid Decision As GM Needs More Cash
May 28 2009 - 12:53AM
Dow Jones News
Germany has delayed a decision on providing state-backed bridge
financing to General Motors Corp.'s (GM) Adam Opel GmbH unit
because the U.S. parent company has surprisingly come up with new
cash demand, German government officials said early Thursday.
A decision over Opel has been delayed to Friday, Economics
Minister Karl-Theodor zu Guttenberg told reporters after late night
negotiations in Berlin that dragged on into the early hours of
Thursday.
Finance Minister Peer Steinbrueck said GM surprisingly presented
a new cash demand of EUR300 million, which the federal government
is unwilling to meet. He added that the exact purpose for any
German state aid has to be transparent. "This wasn't the case...We
can't accept that, because we need security," he said. Steinbrueck
said, however, that there is "reasonable hope" that a decision on
bridge financing for Opel could be made Friday.
Steinbrueck also said that Austrian-Canadian Magna International
Inc. (MGA) and Italian auto maker Fiat SpA (F.MI) are still in the
race for Opel, while financial investor Ripplewood isn't
anymore.
Chancellor Angela Merkel met with key cabinet ministers,
governors of the German states with Opel plants, representatives
from parent GM and the U.S. Treasury, as well as executives from
three bidders for Opel.
Steinbrueck voiced disappointment over how very little
information was being provided by the U.S. Treasury, which
Guttenberg described as "marginal, to put it politely".
The meeting was overshadowed by a rift between the ruling
coalition parties, with the Social Democrats appearing to be ready
to bail out Opel at any cost to safeguard jobs. Zu Guttenberg,
however, early Thursday insisted that an orderly insolvency remains
an option as a final resort.
The German government has been under pressure to make a decision
as it sought to avoid Opel getting embroiled in GM's looming
insolvency proceedings in the U.S. and risking large-scale job
losses at a time when Europe's largest economy is gearing up for
federal elections in September.
Magna, seen as the front runner for a deal, has teamed up with
Russian auto maker OAO GAZ Group (GAZA.RS) and state-controlled OAO
Sberbank (SBER.RS). The Russian partners have provided little
detail so far about their plans for Opel. They do, however, have
prominent support as a German government spokesman confirmed that
Merkel has discussed the bid for Opel with Russian Prime Minister
Vladimir Putin during a phone call last weekend.
Magna founder and chairman Frank Stronach said in Berlin he was
upbeat about Opel's potential, adding that Magna would be willing
to help finance GM's extra cash demand. "But if we sign the
contract and (GM) breaches it, we would expect the German
government to support us...in getting the money back," Stronach
said.
"Opel has always been somewhat restricted, because they weren't
free," he told reporters on the sidelines of the meeting. Stronach
said he believes Magna "could run Opel as a world brand".
According to previous statements, Magna's consortium plans an
initial investment around EUR700 million. Under the plan, which is
backed by Opel's works council, GM would retain a 35% stake in the
company. Sberbank would take a 35% stake as well, with Magna
holding 20% and Opel's employees with 10%.
But some analysts have voiced concerns over the mid- and
long-term prospects of the planned tie-up as both Magna and GAZ
have been battered by collapsing demand in global auto markets amid
the economic downturn.
GAZ is controlled by Basic Element, the investment holding of
embattled Russian billionaire Oleg Deripaska. Debt-ridden
Deripaska, who also controls aluminum giant UC Rusal, recently lost
his 20% stake in Magna to creditors. But both sides said at the
time that they would remain partners.
Magna itself swung to a loss of $200 million in the first
quarter from earnings of $207 million a year earlier as sales
tumbled 46% to $3.6 billion. GM is Magna's largest customer and
Chrysler LLC is its fourth largest.
Italian auto maker Fiat SpA (F.MI) has launched a rival offer,
but Chief Executive Sergio Marchionne didn't attend the press
briefing following the meeting.
On Tuesday, Chinese auto maker Beijing Automotive Industry Corp.
emerged as a possible bidder. Economics Minister zu Guttenberg
confirmed that he received a letter of intent from the Chinese
investor, but added that BAIC wasn't part of the negotiations in
Berlin.
Although a decision to sell Opel and its U.K. sister brand
Vauxhall, the core of GM's European division, will still have to be
made in the U.S., the German government's support is crucial for
the brands' prospects as the bids are based on billions of euros in
financial guarantees from the state.
Germany's federal government and the states of Hesse, North
Rhine-Westphalia, Thuringia and Rhineland Palatinate, which are
home to Opel plants, were expected to decide on the bridge
financing for Opel late Wednesday or early Thursday to keep it
operating even if GM files for insolvency. The interim financing of
around EUR1.5 billion would be from state-owned bank KfW
Bankengruppe and regional banks of the states with Opel plants,
according to previous statements.
Company Web site: www.opel.com
-By Christoph Rauwald and Andrea Thomas, Dow Jones Newswires;
+49 30 2888 4126; christoph.rauwald@dowjones.com;
andrea.thomas@dowjones.com