PSA Buys Opel for €2.2 Billion

PSA Group has agreed to acquire General Motors Co.’s Opel operations—including Vauxhall in the U.K. and GM Financial’s European unit—in a deal worth €2.2 billion ($2.3 billion).

The purchase makes PSA the second-largest carmaker in Europe, after Volkswagen AG, with a 17% market share and roughly €75 billion in revenue.

Opel has lost some €20 billion ($19 billion) over the past 17 years. GM says shedding the unit will strengthen its core business and allow the U.S. company to spend more on “higher-return opportunities,” such as advanced technologies.

GM will take a non-cash charge of about $4.5 billion (€4.2 billion) on the deal. The sale will free up $2 billion in cash that the company says it will use to buy back shares.

PSA predicts annual savings of €1.7 billion ($1.8 billion) by 2026, most of which will occur by 2020. The company projects that Opel/Vauxhall will sustain an operating margin of 2% by 2020 and 6% by 2026, led by positive free cash flow in four years.

The deal values Opel/Vauxhall operations at €1.3 billion ($1.4 billion) and GM Financial at €900 million ($954 million). The latter purchase is through a new 50:50 joint venture between PSA and BNP Paribas SA that will retain GM Financial’s existing workforce and sales platform.