GM's board scuttles Magna deal

Magna chairman and founder Frank Stronach takes a call at the company's Aurora, Ont., headquarters.

Frank Stronach's vision of turning his Magna International Inc. auto parts company into a full-fledged vehicle manufacturer has vanished after General Motors Co. reversed an earlier decision to sell a majority stake in its battered European subsidiary.

The GM move, made months after Magna and its Russian partner Sberbank reached a preliminary deal to buy 55 per cent of Adam Opel GmbH, came in a final decision on the Magna-led offer by GM's board of directors Tuesday.

Mr. Stronach was even-handed about the decision, saying “life goes on," even though he and other senior Magna executives spent several months on the deal, which called for the Canadian auto parts giant and the Russian bank to split the controlling stake in Opel evenly between them.

“You take it as it comes and you go on and look for other opportunities," he said. “It's not for us to criticize the customer."

GM is Magna's largest customer.

After winning the approval of the German government in the spring, Mr. Stronach said he wanted to assemble Opel vehicles in Canada and create the first Canadian-owned auto maker since the McLaughlin family sold their business to GM in 1918.

At that point, the Magna-led bid appeared to have won out over competing offers from Belgium-based investment company RHJ International and auto maker Fiat SpA, after Magna won approval from the German government.

Germany, where about 25,000 of Opel's 55,000 employees work, led the rescue attempt for Opel, which GM has owned since 1929.

Germany's approval of Magna International was initially endorsed by the Detroit-based company.

But GM appeared to change its mind about selling the Germany-based auto maker and Opel's U.K. unit Vauxhall after a quick trip through Chapter 11 bankruptcy protection in the U.S.

A statement by the auto maker late Tuesday backed up that view. “Given an improving business environment for GM over the past few months and the importance of Opel/Vauxhall to GM's global strategy, the GM board of directors has decided to retain Opel," GM said. The auto maker will “initiate a restructuring of its European operations in earnest."

But one of the key features of the deal for Magna was the opportunity to join with Russian oligarch Oleg Deripaska and his OAO GAZ auto company to develop Opels for the Russian market. Magna believes the Russian economy will recover from its current disastrous state and become one of the thriving auto markets of the next decade. Sberbank was expected to flip its 27.5 per cent stake in Opel to GAZ once the deal was completed.

Fritz Henderson, GM's CEO, said business in Europe is improving. “At the same time, GM's overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured."

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