Rival bidders provide needed theatrics for Opel deal

By Christiaan Hetzner and Angelika Gruber - Analysis

FRANKFURT (Reuters) - Neither the German government nor bankrupt U.S. carmaker General Motors GMGMQ.PK will admit it, but rival suitors for GM's Opel unit are likely just pawns in a high-stakes game of poker with favored bidder Magna (MGa.TO).

Magna, a Canadian auto parts supplier, and its Kremlin-backed partner Sberbank (SBER.RTS) are emerging as the only bidder for Opel acceptable to most parties with a stake in the carmaker's fate -- GM, the German government, unions and dealers, analysts and those close to the deal said.

But as GM and Berlin work toward a deal they cannot afford to let themselves become hostage to Magna's demands.

So industry watchers see Beijing Automotive Industry Corp (BAIC)'s visit to Opel headquarters Ruesselsheim to conduct due diligence this week as both a means to heighten pressure on Magna and insurance for GM should a Magna deal fail.

"Magna definitely wants to reach an agreement and (Russian Prime Minister Vladimir) Putin wants one too, so there's a considerable commitment and a lot would have to happen to cause a collapse," said IHS Global Insight analyst Christoph Stuermer, who is convinced a deal will be reached.

With the July 15 deadline approaching fast, sources close to the talks will not rule out the emergence of unexpected demands and threats of a delay, or an even an atmosphere of brinkmanship returning, but they maintain it is part of a show and say GM and Magna's ultimate interests remain aligned.

"I think these talks with BAIC are more in the spirit of 'if Magna fails' - I don't hear anyone, anywhere inside GM thinking they are not full steam ahead with Magna," said a source at GM.

Another source, familiar with Magna's thinking, said: "The negotiations are proceeding well and last week there was massive progress...At the moment there are no genuine dealbreakers."

Magna left GM at the altar the last time it teamed up for an acquisition with a Russian partner -- GAZ (GAZA.RTS) in this case -- when, the GM source said, it backed out abruptly from buying a stake in Opel diesel engine supplier VM Motori of Italy, and there's no guarantee it may not repeat the act.

Magna extended an offer to lend Opel 350 million euros to plug an immediate funding hole, but after its only rival at that point, Fiat (FIA.MI), pulled out, it suddenly began arguing for greater assurances on repayment, leaving Berlin feeling cornered.

GM CEO Fritz Henderson has said talks are not exclusive and the German government has insisted repeatedly the race remains open to BAIC and Fiat. Even disqualified bidder RHJ International (RHJI.BR) is being touted as an option again, but time is not on anyone's side in this game.

"Naturally all of this is only to exert pressure on Magna... They have to reach an agreement and in my opinion that will happen," said Jaap Timmer, the head of Opel's European dealer body Euroda.

Insiders say the carmaker has pushed back key expenses into the fourth quarter to avoid cash drains, and Ellesmere Port's production ramp up for the November market launch of the Astra hatchback, Opel's key new model, may be at risk if GM cannot close a deal before the German general election on September 27.

POLITICAL POSTURING

Magna is the only bidder that has signed any legal document, and while not binding, this letter of intent established a foundation for a widely acceptable solution.