Saturday, May 30, 2009

The German Government has chosen Magna

General Motor's Euripean Arm has been saved from Insolvency procedures that is expected to hit the US group after an agreement has been announced at about 2am this morning. The Canadian Group, Magna International will be taking over the business with the backing of the German Government.

FIAT, the other group which was in the race to takeover the struggling group and acquiring an good brand at a discounted price, had withdrew from talks with the German Government, GM and US Treasury as it failed to provide guarantee on the number of Jobs that would have been saved and provide clear finance plans.

Under the signed agreement between GM and Magna, shares in the European arm of GM (GME) will be transferred away from GM so as to protect Opel from an imminent GM insolvency (which is expected to be announced on Monday). The German Government will also give GME €1.5bn in credit guarantees while final negotiation take place between GM and Magna. For the deal, Magna, together with Russian bank Sberbank, is offering €700m for 55 per cent of Opel and has agreed to come up with €300m of emergency funding that GM USA says it needs immediately.

The decision by the German Government to grant guarantees to the Magna was a happy ending for all German ministers. Karl-Theodor zu Guttenberg, German economics minister said that he was not all that happy with the agreement. He would have been happier to see GME become insolvent rather than grant so much money as guarantee to the future owner of the brand. However due to the upcoming elections the German government had to find a solution to this problem as soon as possible and this could have led it to take a less favourable option after all.

So we might consider this deal as another recession bargain...will there be any others as more companies seek to streamline their activities and divest businesses which are not coherent with their main area of business?

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