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Oh, come on, Magna (NYSE: MGA ) ! Are you trying to blow this deal?
Shortly after announcing its revolutionary bid to evolve into a full-scale automaker, Magna already seems to be choking on success. Two months ago, I explained how Magna's interest in buying General Motors' Opel division gave us a chance to profit from a bankrupt GM. Within weeks, Magna backed up the assertion when it fielded a bid superior to what Fiat had on offer (but, as I subsequently argued, didn't go far enough). Rather than make full use of its tremendous cash war chest and purchase Opel outright, Magna proposed taking a bit part in this deal, offering to take just a 20% interest in an Opel it valued at less than $1.4 billion in total.
Now it looks like a buyer with real gusto may snatch defeat from the jaws of Magna's victory.
Look East, young bondholder
In recent days, details have begun emerging regarding a competing bid for Opel, this time out of China. Beijing Automotive Industry Corp (BAIC) reportedly wants to purchase a 51% interest in Opel for the princely sum of $924 million (thus valuing the company roughly 30% higher than Magna's bid.) Moreover, BAIC would require the German government to finance its bid with only $3.6 billion in guarantees -- just about half the support Magna and its partners requested.
By all logic, this deal should cut Magna off at the knees. It offers more cash to GM bondholders in the bankruptcy proceedings (sorry, shareholders. You're wiped out regardless), puts less of a strain on the German taxpayer, and offers China yet another outlet to dump its unwanted dollars. And according to GM, negotiations with Magna are not exclusive -- it's free to take a better offer from BAIC.
Will Magna prevail?
From where I sit, only two facts currently work in Magna's favor. First is BAIC's express intention to close down some of Opel's European factories and move the work to China. That won't go over well with German voters.
Second, GM may not want Opel competing for Chinese sales. After all, GM is enjoying strong growth in the Middle Kingdom, where it goes head to head with Volkswagen and Toyota (NYSE: TM ) in the race for market share. It's not easy to find a market where GM trumps Nissan (Nasdaq: NSANY ) , Honda (NYSE: HMC ) , and Ford (NYSE: F ) with such aplomb, and I doubt GM wishes to risk its lead.
Whether the bankruptcy court will agree remains to be seen. Unfortunately, Magna's makeover may hang by this one, thin thread.