Back to Headlines Print Version Buzz Up Stumble it Tweet it Facebook LinkedIn

Magna's Opel Loss Could Be Shareholders' Gain

By Andy Georgiades, Of DOW JONES NEWSWIRES

TORONTO -(Dow Jones)- While Magna International Inc. (MGA) may lament the breakdown of its deal to acquire a stake of General Motors Co.'s Adam Opel GmbH unit, shareholders may breathe a sigh of relief.

"We think it's positive for the stock if this (Opel deal) doesn't go through," said UBS analyst Fadi Chamoun, noting that the risk/reward for the investment isn't attractive given it falls outside its core expertise in the auto-parts business.

A Magna spokeswoman said the company had no comment on Opel but will issue a response "shortly."

As reported late Tuesday, GM's board of directors has changed its tune on Opel, deciding to restructure its European operations instead of selling them due to an "improving business environment."

Magna's share price has lagged its U.S. peers as the Opel saga has dragged on. While Magna is up about 17% in the past 12 months, Johnson Controls Inc. (JCI) is up 37%, American Axle & Manufacturing Holdings (AXL) is up 125%, and Gentex is up 67%.

In a past note on Magna's potential investment in Opel, Chamoun said that Magna's best course of action would be to "fortify" its leadership position as a Tier 1 supplier.

"The auto parts supply base has been significantly weakened during the current downturn with the bulk of Magna’s competitors having limited access to capital, effectively hampering their competitiveness," he wrote. "As a result, we believe meaningful opportunities to secure incremental market share across its current product offering, organically or via acquisition, are on Magna&# 8217;s horizon."

Michael Willemse, analyst at CIBC, said Magna's Opel deal got way too much attention relative to the size of the company's actual investment - about $300 million. While his view of the company wouldn't change whether it won Opel or not, he said Magna's stock will probably go up because there will be "less distraction" for shareholders worried about the repercussions of the Opel investment.

In addition, any concerns about Magna's investment in Opel scaring away its automaker-customers concerned about intellectual-property leaks should also "go away," he said.

Company Web Site: http://www.magna.com

-By Andy Georgiades, Dow Jones Newswires; 416-306-2031; andy.georgiades@ dowjones.com

  (END) Dow Jones Newswires
  11-03-091833ET
  Copyright (c) 2009 Dow Jones & Company, Inc.