July 16, 2009
When Governments Sell Companies: The Opel Deal
Anyone with any doubt over whether governments will inject political considerations in deals affecting government owned operating companies should take a close look at the Opel sale. GM, with its majority owned the United States government, is attempting to sell its Opel division, a major manufacturer in Germany and other European countries. The German government is willing to help finance the sale. There are at least three potential buyers: 1) A Chinese company that probably will pay the most and require the least subsidy; 2) A private equity company with a major United States investor that will pay royalties for intellectual property after the deal; and 3) A Canadian-Austrian automotive supplier (operating company) that probably will pay the least. Who is the front runner for the deal? 3, the operating company. Why? The German government, going into an election, is anxious to keep German plants open (the Canadian-Austrain company is the most likely to do so) and German officials up for re-election has been basing private equity companies and Chinese buyers. The United States government does not want to "upset" a close ally when seeking more help in Afghanistan. If GM wants to maximze the returns for its taxpayers/owners it would sell to China. No chance. GM will take the hit. When government owns businesses, investor welfare is easily and quickly sacrificed for political goals.
July 16, 2009 | Permalink
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If buyers number one or number two are so hot, why can't they find private financing to buy Opel? The seller is the debtor-in-possession under the supervision of the U.S. Bankruptcy Court, not the German government. (The operating company owned by the U.S. Government, as I understand the matter, got only the assets they are going to be used in continuing operations, something that does not include Opel.)
The German government is merely offering to finance the deal, and is legitimately doing so in order to save jobs in a way that costs little if Opel eventually pays back the loan. Other bidders are free to find their own financing and make their case to the bankruptcy judge.
If the German government is the only party in the world willing to finance the deal (and it, not the U.S. government appears to be the one rounding up bids), then maybe the offers of the other parties aren't so sweet because the default risk is material and high.
There is nothing illegitimate about a government extending credit only if the loan benefits its citizens. Why should it facilitate a bid that would offshore more German jobs? Germany's approach is probably a pretty good value compared to, for example, spending money on defense projects like a backup F-22 engine, whose primary purpose is to create jobs.
Posted by: ohwilleke | Jul 16, 2009 5:33:16 PM