French automaker PSA Group agreed to buy General Motors Company's (NYSE: GM) European business for 2.2 billion euros ($2.3 billion), marking the company the second-biggest auto manufacturer in Europe.
The maker of Peugeot and Citroen cars will pay 1.32 billion euros for GM’s Opel business and its U.K sister brand Vauxhall. Wahile 650 million euros will be paid in cash and 670 million will be paid with warrants. PSA group will pay the rest 900 million euros for Opel’s financing arm by a joint venture with BNP Paribas.
The acquisition will help PSA better compete with market leader Volkswagen. The company expects to achieve an operating margin of 2 percent within three years and 6 percent by 2026, with an annual savings of 1.7 billion euros.
"We're confident that the Opel-Vauxhall turnaround will significantly accelerate with our support," PSA Chief Executive Carlos Tavares said.
PSA shares jumped as much as 5.25 percent to 20.06 euros. GM struggled to earn money in Europe despite several turnaround attempts. The company had suffered total losses of about $9 billion since 2009. The spin off will help GM increase its profitability.
Rebecca Lindland, an executive analyst at Kelley Blue Book, said in a statement. “The European marketplace, like the U.S. is not expected to grow in the coming years…PSA and GM, like everybody else, will look to the enormous potential in both China and India for expansion.” The Washington Post reported.