07.27.09
Government Motors
Salient observations from the Business Law Prof Blog: “Anyone with any doubt over whether governments will inject political considerations in deals affecting government owned operating companies should take a close look at the Opel sale. GM, with its majority owned the United States government, is attempting to sell its Opel division, a major manufacturer in Germany and other European countries. The German government is willing to help finance the sale. There are at least three potential buyers: 1) A Chinese company that probably will pay the most and require the least subsidy; 2) A private equity company with a major United States investor that will pay royalties for intellectual property after the deal; and 3) A Canadian-Austrian automotive supplier (operating company) that probably will pay the least. Who is the front runner for the deal? 3, the operating company. Why? The German government, going into an election, is anxious to keep German plants open (the Canadian-Austrain company is the most likely to do so) and German officials up for re-election has been basing private equity companies and Chinese buyers. The United States government does not want to “upset” a close ally when seeking more help in Afghanistan. If GM wants to maximze the returns for its taxpayers/owners it would sell to China. No chance. GM will take the hit. When government owns businesses, investor welfare is easily and quickly sacrificed for political goals.”
