Magna sweetens Opel bid to soothe critics: sources

By Gernot Heller and Christiaan Hetzner

BERLIN/FRANKFURT (Reuters) - Canadian auto parts maker Magna offered to increase the amount of upfront capital it would invest in Opel as part of a bid for the General Motors' GM.UL European unit, several sources said on Tuesday.

The revised bid leaves the total proposed amount at some 500 million euros ($714 million), but tilts the financing mix toward an immediate equity injection instead of using convertible debt for the bulk of the funding.

In a blog entry posted on the company's website on Tuesday, GM's chief negotiator said he still expected the deal to close by the end of September, although no preference as yet has been made for a specific bidder and key points had yet to be resolved.

"The bid from RHJ International (RHJI.BR) is completed, and would represent a much simpler structure and would be easier to implement...This represents a reasonable and viable option to be considered as the very difficult issues around the Magna negotiations continue to be worked (on)," GM's John Smith wrote.

Magna's new offer is expected to silence some of the critics in the German government that have admonished it for effectively shifting all of the risk onto German taxpayers, who will largely finance the deal through billions in loan guarantees.

Germany's economics minister, Karl-Theodor zu Guttenberg, has said that European cartel authorities would look at Opel's ratio of equity to debt as a key criteria for whether a new owner just served as a fig leaf for a state-sponsored bailout.

"Magna is now offering 350 million euros of its own capital immediately," said the government source, who is familiar with talks to find an investor for Opel. "Furthermore, there should be a 150 million euro convertible bond."

The Canadian company and its consortium partner Sberbank (SBER.RTS) are competing with RHJ International for Opel. GM can no longer afford to finance its European carmaker and is being forced to give up majority control in exchange for substantial government aid for Opel.

Magna originally wanted to invest just 100 million euros ($142.8 million) of equity capital in Opel in two tranches of 50 million euros along with another 400 million in convertible debt, banking on overwhelming political support from the four regional states home to Opel for its bid.

MAGNA THROWS CURVEBALL

"The world is a different place with 350 million. This proves it was a correct decision to negotiate with two parties -- otherwise Magna never would have improved its offer," one source close to the talks said, adding that the only remaining hurdle for Magna now was reaching an agreement with GM.

Magna's founder and chairman, Frank Stronach, met with GM Chief Executive Fritz Henderson on Monday in Detroit to discuss some of the last issues of contention between the two.

The Canadian group's improved offer comes after a government-sponsored evaluation of the bids by investment boutique Lazard suggested RHJ had a slight advantage, since it offered more equity and required substantially fewer loan guarantees.

Germany has expressed a preference for Magna's bid, while sources involved in the negotiations say GM favors RHJ's offer.

A person familiar with RHJ's thinking said the Belgian-based financial investor did not feel Magna's sudden move now put it under pressure to follow up with a sweetened bid.