Opel sale is latest deal undone by recovery

The abruptly scrapped sale of GM's Opel is not the first example of a deal born of the financial crisis being undone by the economic recovery, and probably won't be the last.

General Motors [GM.UL] on Tuesday unexpectedly called off the long-running sale of Opel, citing improving business conditions and the European unit's strategic importance.

This and earlier reversals, such as Rio Tinto Ltd/Plc's abandonment of a tie-up with China's Chinalco and Lloyds Banking Group Plc's manoeuvring to avoid a UK government insurance scheme, are a mirror image of what happened during the crisis.

Then, the rationale for many transactions, the confidence to do them and funding all evaporated, leading to a record number of withdrawn deals in 2008. Some spurned targets even sued, trying to force former suitors to complete takeovers.

Now the opposite rationale applies: world stocks .MIWO00000PUS are up more than 60 percent from a March low and the International Monetary Fund says a global economic recovery could start this year.

Executives feel less trapped because equity and debt markets are opening up for many firms and are more confident about future business performance.

ABOUT TURN

An early example of this was Rio. In June the mining group dropped an unpopular $19.5 billion deal to sell convertible bonds and stakes in key assets to Chinalco, in favour of a joint venture with BHP Billiton Ltd/Plc and a $15.2 billion rights issue.

As recently as the past week Lloyds freed itself from a government scheme to insure bad debts, with a 21 billion pound capital raising that would have been unthinkable a few months back.

While such about-turns may be galling for the company officials, bankers and lawyers who spent months crafting the original deals, such about-turns may be good news for investors, who are less likely to see assets sold at firesale prices.

And investment bankers may end up raking in bigger fees if companies end up tapping capital markets, since rights issues pay roughly 2 to 3 percent in fees, 10 times or more the rate earned for an M&A deal.

The improving outlook is also undermining restructuring deals, such as the debt swap deal the owner of German metals processor Almatis had struck with a vulture fund.

Some other deals may yet come unstuck.

Ford Motor Co last week named China's Geely Automotive Holdings Ltd as preferred bidder for its Swedish unit Volvo, but months of negotiations lie ahead over a unit enmeshed within the wider operations of Ford, which remains keen to protect intellectual property rights.

Still, as volatility recedes, overall dealmaking is likely to pick up and fewer deals are likely to run aground.

Global mergers and acquisition (M&A) activity has plunged from more than $4.3 trillion in 2007 to $1.6 trillion in the year to date. But optimism is growing that 2009 might represent a trough and UBS, for example, this week said next year might see a 15 percent M&A rebound.

(Editing by David Holmes)