GM board considers Opel sale to Magna after new concerns surface

Nov 3, 2009, 16:20 GMT

   Washington - General Motors' board Tuesday was weighing its final decision on whether to sell Opel to the Canadian car parts manufacturer Magna, as last minute questions surfaced about whether there had been political pressure on the deal.

One of the last barriers to the deal appeared to have been cleared earlier in the day, as Opel employees in Russelsheim, Germany, agreed to forfeit 265 million euros (390 million dollars) in salary annually if Magna took over operations.

In exchange, they would receive a 10-per-cent share option in the new Magna-operated company.

But a last minute development could derail the Magna deal. Last week, the European Union raised questions about whether Berlin had used undue political pressure to sway GM away from a bid from Belgium-based RHJ International Inc - the buyer favoured by the US government - and towards the Magna offer.

Germany has pledged 4.5 billion euros (6.8 billion dollars) to support the deal, in the apparent hope of preserving jobs in Germany. The EU's competition regulators were concerned that the aid was made conditional on Magna's acquiring the majority holding in Opel.

The comments out of Brussels prompted a flurry of responses and reawakened a debate over the best fate for Opel.

Germany's Economics Minister Karl-Theodor zu Guttenberg wrote a quick letter of reassurance to GM saying that Berlin's financial support for Opel was not solely for the Magna-led bid.

That letter appeared to have revived other options for GM, whose top negotiator on Opel, John Smith, said the board would consider the 'changes' in the deal reflected in zu Guttenberg's letter at Tuesday's meeting.

Executives at the Detroit-based auto giant back the Magna plan, which would hive off a 55-per-cent stake. The Magna consortium includes the Russian bank Sberbank.

The US government, however, after bailing GM out of bankruptcy with the pledge of 50 billion dollars in exchange for 60 per cent ownership, had been pushing for the RHJ International deal.

According to the Wall Street Journal, board members would be asked Tuesday by the GM management team to approve the contents of a letter that would put to rest EU regulators' concerns.

The letter would be addressed to the German government saying that a decision for Magna was the most economically sensible option for Opel.

A separate option would be for GM to retain ownership of Opel, media reports have said.

European Union regulators have set a November 27 deadline for their approval of Magna takeover.

About half of Opel's 50,000-strong workforce is in Germany. The car producer is at present existing on a 1.5-billion-euro bridging loan from the German government.

Last week, Magna reached an agreement with Spanish trade unions on the deal, based on the premise that it would acquire Opel, which also has operations in Belgium, Poland and Britain.