France's PSA Group plans to buy Opel from General Motors in a deal valuing the business at 2.2 billion euros ($2.3 billion), creating a new European car company to challenge market leader Volkswagen.
The maker of Peugeot and Citroen cars vowed to return Opel and its British Vauxhall brand to profit, targeting an operating margin of 2 percent within three years and 6 percent by 2026 underpinned by 1.7 billion euros in cost savings.
The deal seals GM's exit from Europe and ends a relationship dating back to the 1920s.
GM will receive 650 million euros in cash and 670 million euros in PSA share warrants for the Opel manufacturing business. The Paris-based carmaker and BNP Paribas will pay an additional 900 million euros for Opel's financing arm, to be operated jointly and consolidated by the French bank.
GM will take a non-cash charge of $4 billion to $4.5 billion on the deal when it closes in late 2017. The company said the transaction would cut its cash balance requirement by $2 billion, allowing it to accelerate share repurchases.
The company's shares were down 1.4 percent in midday trading in New York.
PSA shares jumped as much as 5.2 percent after Chief Executive Officer Carlos Tavares said GM's European operation could be turned around using lessons from the French group's own recovery. Opel recently recorded its 16th consecutive full-year loss.
"We're confident that the Opel-Vauxhall turnaround will significantly accelerate with our support," Tavares said.
By acquiring Opel, PSA leapfrogs French rival Renault to become Europe's second-ranked carmaker by sales, with a 16 percent market share to VW's 24 percent.
Last year, PSA and GM Europe recorded a combined 72 billion euros in revenue and 4.3 million vehicle deliveries.
PROUD, NOT RELIEVED
Eight years after coming close to selling Opel to Canada's Magna, Detroit-based GM has faced renewed investor pressure to offload the business to raise profitability, rather than chase the global sales crown currently held by VW.
After fending off 2015 merger overtures by Fiat Chrysler with support from her board, GM CEO Mary Barra agreed to target a 20 percent return on invested capital and pay out more cash to shareholders.
"The way I look at this is positioning Opel-Vauxhall to be incredibly successful in the future," Barra said on Monday when asked by a reporter whether she was relieved.
"General Motors doesn't have to be relieved," PSA's Tavares interjected. "They can be proud of giving Opel-Vauxhall a better future." The two carmakers, which already share some production in a European alliance, confirmed last month they were negotiating PSA's outright acquisition of Opel, sparking concern over possible job cuts.