General Motors will have a hard time overcoming Germany's resistance to a financial investor if it wants to sell Opel to RHJ in the hope that it could later buy its European carmaker back.
RHJ, a Belgian investment group, may have good connections in Berlin thanks to Chief Executive Leonhard Fischer's days running Dresdner Bank, but private equity has suffered a poor reputation in Germany since long before the collapse of U.S.-style turbo-capitalism.
Convincing the German government ahead of general elections in September that Opel is better off in the hands of private equity will be a feat, especially as there is a rival strategic investor Magna that is heavily supported by unions and the four German states with a stake in the process.
There are simply too many people that are against RHJ. It's probably in GM's interest to buy it back in the future from a financial investor so I think it wants that option, and GM plays a considerable role in the decision, said an analyst.
But in the end the opposition is probably too great. It is also difficult to convey this to the public if you talk about Magna for weeks and then choose RHJ, he said.
RHJ International, which has been listed since 2005, has not made a profit, although it tends to focus on the value of its assets and cash flow.
It made a loss of 131.3 billion yen ($1.40 billion) in the year to the end of March 2009, taking large impairment charges for writing down the value of its assets, a number of which are engaged in the auto sector.
People familiar with the talks say that RHJ has revised its concept to exclude plant closures in Germany, but this is being met with some disbelief.
I'm a bit skeptical when a government sets out to analyze the concepts under the guidelines that all plants have to be saved, since the reliability (of these promises) in one or two years' time is very questionable, Stephan Bratzel, the head of the Center of Automotive Research in Bergisch Gladbach in central Germany.
An investment banker not involved in the deal said that for most people, the appeal of a financial investor was limited.
A financial investor offers Opel in principle only a temporary solution until a new home is found. Over the long term a sensible industrial solution has to be found, he said.
The German government seems to be leaning toward Magna and partner Sberbank SBERO3.MM.
On Thursday, German Chancellor Angela Merkel said that her government was trying to clear up the remaining questions in Magna's bid for Opel as soon as possible, and Russian President Dmitry Medvedev said he hoped a deal for Sberbank and Magna to buy Opel would be realised.
A source involved in the negotiations told Reuters that GM would be granted the right to make the first offer to repurchase the majority stake in Opel under a takeover concept presented by RHJ to officials at the German economics ministry on Wednesday.
GM sources said that the plan represents a simpler, more elegant solution to the rival bid by a three-party consortium built around Magna that poses the additional risk of a technology transfer to Russia's hopelessly obsolete carmakers.
RHJ offers GM some interesting options.
It could carry out restructuring that would be painful for a strategic player -- such as more revamps from which GM has shied away to avoid triggering a war with its unions.
Both sides could win: RHJ makes a tidy return on its low-risk investment and GM wins back a restructured Opel free of unwanted problem makers like its strike-happy workforce in Bochum, Germany.
I hope that I end up being proved wrong, but GM looks like it only used Magna in order to get the (1.5 billion euro German government) bridge loan for Opel and buy time until it could emerge from Chapter 11. Now it sees there is a chance to keep Opel after all, said Rudi Kennes, the deputy labor leader at Opel.
BERLIN'S COST KILLER
Organised labor, which traditionally wields a strong influence in Germany, once backed RHJ as an alternative to Magna in order to deflect support for Fiat but have begun mobilizing opposition to a possible deal with the Belgian group.
Not all parts of government are behind Magna.
Some government officials may care most about reducing the taxpayers' exposure, so financial investors may not be per se taboo. Others believe the industrial concept counts most, but conservative members of the government could be persuaded that a slimmer, healthier Opel might never need another bailout again.
Chancellor Merkel's cabinet is represented in the trust that formally owns 65 percent of Opel by Continental AG's ex-CEO Manfred Wennemer, himself a feared cost killer who never backed down from closing an underutilized plant.
(Additional reporting by Philip Blenkinsop in Brussels, Editing by Sitaraman Shankar)