When GM bought seven percent of the moribund PSA Peugeot Citroen five months ago, the happy couple praised monstrous synergies and annual cost savings of $2 billion a year coming from the – ahem – tie-up. Hope springs eternal, but currently, the value of this dubious investment is deflating faster than a popped balloon. Even GM is realizing it and tells the Treasury that it may have to write down that investment if things don’t get better soon.
The ever so vigilant Reuters actually went to the trouble of reading the complete 10-Q GM filed with the SEC in connection with GM’s recent quarterly report. In that filing, GM says:
“We believe that the recent economic uncertainty is weighing heavily on the valuation of PSA. Should market conditions not recover in the near-term, we may conclude the impairment is other-than-temporary, resulting in an impairment charge.”
Currently, GM thinks/hopes that “the impairment is temporary” and wants to sit it out until the PSA stock turns around.
Your tax dollars at work: Price of Peugeot share since GM’s investment
Would GM adjust the investent to fair market value and take the charge now, it would translate into yet another loss of $243 million. Helpful Reuters does the math:
“GM paid 320 million euros, or $423 million, for its stake, according to a March regulatory filing. Based on Peugeot’s current market value, a 7 percent share of the company is worth 146 million euros ($180.16 million).”
If it’s such a great investment, why not go whole hog? PSA can be had cheaply. The market cap of PSA Peugeot Citroen is a lousy two billion euro. Great price for Europe’s second largest automaker, no?