General Motors has agreed to sell its Opel division to auto supplier Magna International and Russia's Sberbank after the companies hammered out intellectual property issues that had stymied the deal.
The agreement, which gives Magna and Sberbank 55% of Germany-based Opel, lets GM continue using the brand's platforms and purchasing power to trim costs.
The deal is considered a win for German Chancellor Angela Merkel, who saw the outside investors as the best way to save jobs in her country. Opel has four plants in Germany, employing 25,000 people. Merkel is up for re-election Sept. 27.
GM lately had been leaning toward keeping the brand itself even after it went through 10 months trying to sell Opel. GM uses several Opel platforms — the basic underpinnings of vehicles — for many of its global brands. It may have made sense to try to keep Opel instead of selling it in an attempt to preserve that cost-saving cross-usage.
But the head of Opel's worker council threatened GM, saying workers would strike if the automaker attempted to keep the brand.
"Despite attempting to delay the process GM was left with only two options: Shut it down or sell to Magna," says Tim Urquhart, an analyst with IHS Global Insight.
But the platform-sharing raised ongoing problems with rights to the technology. John Smith, GM's lead negotiator in the deal, said intellectual property concerns were the biggest hurdle to getting the deal done.
GM was also worried that Magna and Sberbank would create competition for its key brand, Chevrolet, in Russia. Frank Stronach, Magna's chairman, said the supplier will "put in place appropriate firewalls to ensure a complete separation" between Magna and Opel so confidential product information won't leak out.
The German government backed Magna's bid with $2.2 billion in bridge financing. And it's promised $6.5 billion more in credit to help close the deal. GM will keep 35% of Opel, 55% goes to Magna and Sberbank, and 10% will be held by workers.
It could take weeks or months for the deal to close, especially because the sale is expected to result in closure of Opel's Antwerp, Belgium, plant.
Efraim Levy, an analyst at Standard & Poor's, says the deal could end up being problematic for Magna in the future.
"Some existing customers will be reticent about dealing with a firm that is both supplier and competitor," he said.