Montag, 25. Mai 2009

The Opel Saga Continues

The preliminary bids for Opel came in a few days ago.

At first glance, there are only two possible interpretations:

a) The bidders are unreasonable and want all the upside without taking any risks
b) GM Europe is in extremely bad shape, i.e. the upside is so low that nobody in his right mind would take any risks

It's hard to say which of those two interpretations is more appropriate, as no stand-alone financials of GM Europe are available.

But the terms sound bizarre indeed (based on FTD print edition):

Magna (the "preferred bidder", whatever that means) wants 4.5 bn € loan guarantees, 1.5 bn € bridge financing, 3 bn € of pension liabilities to be taken up by the taxpayer, and additional guarantees on the equity investments to be made by Magna and its Russian partner Sberbank (Magna would take 20 %, Sberbank 35 %).

- It's not really clear why the equity portion of the investment ("up to" 700 m €: What's the "up to" supposed to mean anyway?) should be "guaranteed by the government". Surely, an investor has to take some sort of risk. Otherwise, he's not an investor at all.

- As for the pension liabilities: Aren't they covered by some sort of assets? Machines, factory buildings, inventories, whatever? If not, Opel must have significantly negative equity. (Does it?)

- And regarding the 4.5 bn € loan guarantees and 1.5 bn € bridge financing: What exactly are they needed for anyway? I thought Opel is selling lots of cars lately, courtesy of the German car scraping scheme? Still not enough to earn sufficient cash-flow? (And by the way: What would be the terms? The government would charge for the guarantees, right? Or does Magna expect to get it for free?)

Presumably, the deal does not only cover Germany. It also includes the various GM Europe plants in other countries (most notably Belgium, the UK, Poland, Spain and Russia), but excludes Saab. But funnily, only the German government is considering to provide government guarantees and bridge financing. Nothing is being heard about British, Belgian or Spanish government guarantees.

Der Spiegel argues that the "new" Opel would be to a large extent controlled by the Russian government (the majority owner of Sberbank, which would hold 35 % of Opel). As Russian customers don't like to buy Russian cars, and Opel is already quite popular in Russia, a kind of German-Russian joint venture would be the only practical way to create a semi-Russian "national champion". Fair enough. But if there is sooooo much obvious upside, then why does the German government have to guarantee everything...?

Anyway: We don't know Opel's financials (apart from the not very reassuring Q1 announcement of GM Europe, which showed an EBIT of -2.0 bn US$ for just three months, though I assume this includes Saab). But we can take a quick look at Magna and Fiat:


- Magna lost 1.3 bn $ of its equity in 2008, while sales dropped 10 % compared to 2007.

- It lost a further 300 m $ of equity in Q1. Sales were down nearly by half compared to Q1 2008.

- In spite of this, net equity is still comparatively strong: 7 bn $ as of 3/09, or 60 % of total balance-sheet size. Only a small portion of this is goodwill, the rest is tangible assets.

- Chrysler accounts for 11 % of Magna's sales. It is currently unclear what effect Chrysler's insolvency will have on Magna (will the business disappear? will the receivables be paid?)

- GM (North America + Europe) accounts for 19 % of Magna's sales. So GM's insolvcency would have a major impact on Magna's financials. And in any case, expected production cuts at GM's North American plants are expected to have very substantial effect on Magna's operations in Q2 and Q3, and possibly beyond.

=> Magna has a comparatively strong balance-sheet, but cash is in short supply, and the mid-term business outlook rather uncertain


- Fiat actually increased sales a bit from 2007 to 2008, and posted a profit of 1.7 bn € for the year 2008

- However, equity was down slightly, as Fiat not only paid a sizable dividend (546 m €; their only excuse for this: It happened in the first half of 2008, before the economy crashed), but also took 1.1 bn € of expenses directly to equity.

- In Q1 2009, a further 500 m € of equity was lost.

- The remaining equity of 10.6 bn € still sounds sizable. However, deducting 7.2 bn € of intangibles and 2.5 bn € of tax assets leaves practically no tangible net assets.

- What's worse, inventories and financing receivables keep edging up, causing a drain on available cash.

- Up to now, this was handled via increasing debt (23.4 bn € as of 3/09, up sharply from 18.0 bn € in 12/07), but clearly the finances cannot support any more debt beyond current levels.

=> Fiat's balance-sheet is much weaker than Magna's. However, its business position is probably a bit stronger (Q1 sales were down "only" 25 % from Q1 2008, as Fiat sells mostly small cars, and is not present in the collapsing US market).

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