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General Motors’ shares reverse again after European exit despite positive broker comment

Tuesday, March 7, 2017 7:57
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Shares in General Motors Co. (NYSE:GM) failed to rally in early trading today despite an upgrade in rating from Nomura, extending the falls it made yesterday following the US car maker’s move to sell its European operations.

The Japanese bank hiked its stance for GM to ‘buy’ from ‘neutral’, saying the US automaker’s exit “from long-struggling Europe is a major positive”, which will simplify the group’s business structure and improve profitability.

GM announced on Monday that it has agreed to sell its Opel/Vauxhall European business for US$2.3bn to French firm PSA Group, maker of Peugeot and Citroen cars.

READ: GM offloads European business …

In a note, the Nomura analysts said the European sale frees up resources, which GM could redeploy to develop next-generation powertrains and autonomous driving technologies “to maintain its competitive edge in the crucial North American market over the long term”.

In other broker changes, traders reported that Instinet had also upgraded its rating for GM shares to ‘buy’ from ‘neutral’, while JPMorgan Chase hiked its target price for the stock to US$49 a share, up from US$46.

But, after falls of 0.8% yesterday, GM shares still shed another 1% today to US$37.54 in opening deals with investors still concerned by the fine detail of the disposal agreement.

Fine detail …

Under the terms of the deal, GM will receive €1.32bn for the Opel manufacturing business – €650mln in cash and €670mln in PSA share warrants.

The maker of Peugeot and Citroen cars and French bank BNP Paribas SA will pay a further €900mln for the Opel financing arm and operate it as a joint venture.

However, PSA is only paying around four-fifths of the book value of the financing arm’s outstanding loans.

GM will also retain most of Opel’s pensions deficit, estimated by analysts at $10bn, with PSA only taking on a few schemes worth around US$3bn.

The US firm also announced that it will take an accounting charge of US$4bn to US$4.5bn related to the deal.

GM also revealed yesterday that it will lay off about 1,100 workers at a plant in Michigan, the latest in a string of job cuts by the nation’s largest auto maker at a time when President Donald Trump is pressing companies to put more Americans to work.

The group said it is laying-off about 1,100 hourly and temporary workers at its SUV plant in Lansing after cutting production because one of the three vehicles made there — the GMC Acadia — was moved to a GM factory in Tennessee.

GM added 800 jobs at the plant in Spring Hill, Tennessee earlier this year as it began making the new Acadia model.

Story by ProactiveInvestors


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