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Peugeot set to acquire Opel amid German government concerns

The PSA Group, owners of French car maker Peugeot and General Motors, owner of Opel, have mobilised their chief executives to defend the Peugeot maker's planned acquisition of Opel against a German-led backlash that could derail the deal even before its terms are finalised.

Germany's federal government and powerful unions have heaped criticism on the tie-up plan, confirmed by both manufacturers yesterday, fearing job losses. Britain also said it had contacted GM President Dan Ammann to express concern over the future of Opel's UK plants.

Paris-based PSA said it would despatch CEO Carlos Tavares to meet German labour and political leaders likely to include Chancellor Angela Merkel, as his GM counterpart Mary Barra visited Opel headquarters near Frankfurt.

Tavares, expected to head the combined company if the deal goes through, "wants to meet Opel's German stakeholders", a PSA spokesman said, adding no date had yet been set for those talks. The French carmaker had no further comment.

PSA and GM have declined to say what cuts they would make to jobs, plants, production capacity or research and development under the deal being discussed. Of GM Europe's roughly 38,000 staff, about 19,000 are in Germany and 4,500 in Britain.

While little is known about its financial or operational terms, the prospects for a combined PSA-Opel have so far drawn only lukewarm investor enthusiasm.

PSA shares were 1 percent lower at 1600 GMT, reversing part of Tuesday's 4.3 percent gain after some analysts cautioned that significant cost savings would be needed to justify its dependence on Europe's highly competitive, mature market.

Key savings in production and research and development could prove elusive if the companies are forced to guarantee jobs and industrial sites to secure government and union acceptance.

"There are too many unknown factors to get excited about a potential transaction," Berenberg analyst Alexander Haissl said.

Critical questions include "how quickly PSA can achieve potential savings and reduce GM Europe's cash burn", he told clients in a note. "Restructuring of German and UK plants could turn out to be difficult given the political pressure involved."

German unions can veto strategic decisions under the country's co-determination laws. After news of the secret deal talks broke, German Economy Minister Brigitte Zypries said it was "totally unacceptable" the companies had not included labour or local government representatives.

'IN FLUX'

Germany and France both hold elections later this year. The electoral hypersensitivity of job cuts is further heightened by Merkel's precarious standing in opinion polls.

An adviser to one of the carmakers told Reuters that important aspects of the tie-up were "very much in flux" and vulnerable to pressure.

"It's unclear whether GM will keep an Opel stake, who pays what and if anything will go through at all, given the political backlash," he said.

Another person briefed on the talks said Tavares would pledge to "maintain Opel as a German company in full compliance with German labour law" when he meets government and union officials. He will present the deal as "an alliance between a French carmaker and a German carmaker," the source said.

France, which had initially welcomed a PSA-Opel deal providing French jobs were safeguarded, said on Wednesday it understood Berlin's concerns. The subject came up in conversation between Prime Minister Bernard Cazeneuve and Merkel, a German government spokesman said.

Barra did not speak to workers during her visit to Opel's Ruesselsheim headquarters but sought instead to soothe their apprehension with an internal statement.

The tie-up would put Opel and PSA "in a position to improve their standing in the fast-changing European market", the GM boss wrote, according to media reports later confirmed by staff.

The deal proposal emerged last year from regular talks between GM and PSA, according to two people with knowledge of the matter. The carmakers share three vehicle programmes as a legacy of their last attempt to forge a deeper alliance.

That earlier effort foundered before PSA's 2013-14 near-bankruptcy and bailout, in which the French state and China's Dongfeng <0489.HK> took 14 percent stakes to match the Peugeot family's diluted holding. GM sold a 7 percent PSA stake ahead of the rescue.

But the joint development and production of SUVs and commercial vans at three different PSA and Opel plants has prepared engineering teams to do more, according to one of the sources with knowledge of the plan.

"They're already working together," he said. "They would hit the ground running."

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