Analyst Sees Daimler Buying Opel, And Isn't Happy
February 24 2009 - 8:06AM
Dow Jones News
Daimler AG (DAI) is the natural buyer for General Motors' (GM)
Opel operations - a move that will be "damned" by the market and a
deal that will take some years to integrate, analysts at Bernstein
Research warned Tuesday.
Whether such a deal will occur is very much in doubt.
A spokesman for Daimler told MarketWatch, in an e-mail, that
"the takeover of Opel is not an issue for Daimler."
GM said in its presentation to U.S. Congress last week said it's
in discussions with the German government for operating and balance
sheet support, but made no mention of putting the division on the
block.
Still, in a downgrade to market perform from outperform and a
price target reduction to 25 euros ($31.98) from 35 euros,
Bernstein analysts led by Max Warburton said Daimler is the natural
buyer for Opel, the German-based unit of General Motors.
Daimler shares fell 5% to 18.32 euros in Frankfurt action.
"While an Opel deal may prove to be the correct move in the
long-run, it will likely be damned by the market initially, will
highlight the strategic problems faced by Mercedes, will increase
Daimler's funding needs and will take some years to integrate,"
Warburton said.
Germany may intervene to support Opel, possibly in just a few
weeks time, the analyst said.
"While a pure German state bailout is possible and while other
OEMs could still get involved, we believe the strategic, industrial
and, most importantly, political logic all point to Daimler.
Mercedes is sub-scale and lacks small car expertise - an increasing
problem in an era of falling end markets and declining mix," the
note read.
Mercedes has been supported by demand from Anglo and
oil-producing nations.
"But these vital supports are now collapsing and the market
continues to shift towards small cars," Warburton said.
Opel, when combined with British-based sister firm Vauxhall, is
Europe's fourth-largest vehicle maker and sports one of the highest
capacity utilization rates on the Continent. Opel already builds
all four of its key products in Germany: Corsa, Astra, Zafira and
Insignia.
For the German government, Daimler represents a ready buyer for
a company with 26,000 German jobs.
To reward Daimler, the German government could provide financial
aid for restructuring and possibly buy Daimler's stake in the
aerospace and defense firm EADS.
But there would be downside for Daimler even if the purchase
price was low and if the German government took on Opel's pension
liabilities.
"A deal with Opel, even if it turns out to be a correct
strategic move for Daimler, would take many years to deliver
visible benefits. Meanwhile, fears of ongoing cash costs for
restructuring Opel (requiring fund raising?), plus the realization
that Daimler was moving to structurally lower margins, would weigh
heavily on Daimler's share price," Warburton said.
-Steve Goldstein; 415-439-6400; AskNewswires@dowjones.com