PSA Group's agreement to buy General Motors' Opel/Vauxhall unit in a transaction valued at 2.2 billion euros ($2.3 billion) at first glance seems to have cost the French automaker a bit more than pre-deal expectations of just below 2 billion euros, but this is just an optical illusion.
When you dissect the numbers, it appears evident that PSA CEO Carlos Tavares actually won terms that are much better than any pre-deal expectation. The cash outflow from PSA's coffers will be 1.13 billion euros, expected to be paid when the deal is completed in the fourth quarter.
What will PSA actually pay in cash? The purchase price for Opel/Vauxhall's operations is 670 million euros and the purchase of half of Opel Bank will cost another 460 million (PSA's financial partner, BNP Paribas, will buy this from GM).
Then there is 650-million-euro cost of warrants given to GM that could be converted into 4.2 percent of PSA's shares, but this could happen five years after the deal closes at the earliest, so no sooner than late 2022.
So, given the net cash outflow of 1.13 billion euros PSA will book when the deal gets finalized by the end of the year, what will PSA gets in addition to the 1.1 billion euros of synergies deriving from the 2012 industrial agreements with Opel already in place?
- Opel's share of the additional synergies the two companies had expected to save from 2018 onward on their existing alliance. PSA's part will be 300 million euros a year and you can expect a similar amount generated by the Opel side that will flow to PSA starting next year as Opel will be a fully owned PSA subsidiary by that time.
- 1.1 billion euros in expected new synergies by 2020.
- A bold 1.7 billion euros per year in new synergies run-rate from 2026 onwards.
In the end, is difficult to disagree with the sentiment that Tavares is paying so little now that the deal will still be an operationally positive one, even if future synergies are delayed or are smaller than expected.