WRAPUP 1-GM opts to keep Opel, scraps sale to Magna

* GM board opts to keep Opel European operations

* Decision marks sharp reversal from plan to sell to Magna

* Germany says regrets GM move, wants its money back

* GM says restructuring Opel to cost about 3 bln euros

By Kevin Krolicki and Philipp Halstrick

DETROIT/FRANKFURT, Nov 3 (Reuters) - General Motors
reversed course on Tuesday by abandoning a long-expected sale
of its Opel to a group led by Canadian auto supplier Magna and
opting to keep the European unit after a year of uncertainty
and high-stakes political negotiations.

GM said improving business conditions and the strategic
importance of Opel had prompted the unexpected move by its
13-member board of directors appointed in the wake of its own
bankruptcy just four months ago.

The decision represented a setback for German Chancellor
Angela Merkel, raised the risk of conflict with Opel's European
unions and left open the question of how GM would finance its
plan to go it alone by restructuring Opel.

The move also marked a startling shift in direction from
the course for Opel endorsed by GM Chief Executive Fritz
Henderson, who two weeks ago had said a sale of the European
unit was the most likely outcome.

German's government had lobbied hard for the Magna deal and
on Tuesday night said it wanted GM to repay 1.5 billion ($2.2
billion) in bridge financing extended by German state banks.

"The government regrets the decision of the General Motors
board to restructure Opel itself and to keep it in the group,"
government spokesman Ulrich Wilhelm said in a statement.

GM said it expected that restructuring Opel on its own
would cost about 3 billion euros ($4.41 billion), costs
expected to cover job cuts and plant closures.

Senior GM executives were caught unaware by the move by the
automaker's board, led by plainspoken former telecommunications
executive Ed Whitacre, an outsider who became the face of the
new GM in a recent TV ad blitz in the United States.

Whitacre, whose appointment was vetted by the Obama
administration, has shown a hard-charging streak, showing up at
GM factories unannounced and putting tough questions to
management, people familiar with his tenure have said.

Henderson, a career insider who has vowed to shake up the
slow-moving culture of the 101-year-old automaker, had argued
that the Magna deal was the best remaining choice for GM, after
seven months of painstaking talks with bidders.

The GM board decision to keep Opel came after European
Union officials challenged the terms of the funding Germany had
pledged to support the sale of Opel to Magna.

Germany had promised 4.5 billion euros ($6.58 billion) in
aid to help close the Magna deal, which was widely seen as the
option for Opel most likely to preserve jobs.

But EU officials said GM needed to confirm that it would
have agreed to sell Opel if Germany had made clear that the
same funding would have been available to any buyer.

GM's board had opted to sell a 55 percent stake in the
loss-making Opel unit to Canadian group Magna and its partner
Sberbank (SBER03.MM) after the seven months of talks, which had
included a competing bid from Brussels-listed RHJ
International.(RHJI.BR)

LONG-RUNNING TALKS, LIGHTNING DECISION

The Opel saga has been running for a year. GM first asked
Germany for loan guarantees in November 2008. The automaker had
been seeking a buyer for the unit, which includes the Opel and
Vauxhall brands, since March.

GM's reversal of course on Opel was met with anger and
bitterness in Germany, where support had run deep for the Magna
transaction and plans were already under way to distance the
Opel brand from GM. Opel workers even claimed GM was playing
local politics in its on-again, off-again positions.

"Unfortunately my suspicion seems to been confirmed that
the decision to sell Opel to Magna was connected with the
elections later that month in Germany," Opel's senior labor
leader in Bochum, Rainer Einenkel, told Reuters. [ID:L3480651]

The German state of Hesse's premier, Roland Koch, said he
was angered by GM's decision not to sell Opel to Magna, and
that he wanted GM to pay back its bridge loan by Nov. 30.

Buying Opel would have fulfilled a long-held ambition by
Magna founder and chairman Frank Stronach, who left Austria at
age 21 as an impoverished toolmaker but went on to build one of
the world's biggest car parts groups.[ID:nN10272678]

But by taking control of Opel, Magna would have been
competing with the automakers who buy its parts and some
investors had viewed the deal as risky for that reason.

Shares of Magna have gained 18 percent over the past year,
lagging some rivals, including Johnson Controls (JCI.N), up 39
percent, and BorgWarner (BWA.N), up 30 percent.

"We will continue to support Opel and GM in the challenges
ahead," Siegfried Wolf, Magna's co-chief executive, said in a
statement in response to the GM decision.

'NO OTHER CHOICE'?

Auto analysts said keeping Opel would allow GM to maintain
control of vehicle development and share parts across a few
global platforms, much as Ford Motor Co (F.N) has done.

Opel's Russelsheim operations in Germany have been the
center for developing vehicles that are crucial to GM's vehicle
line-up and its effort to deliver better sales of more
fuel-efficient cars.

The Chevrolet Malibu and the Buick LaCrosse mid-size sedans
are both built on Opel platforms. That is also the plan for the
upcoming Chevy Cruze compact sedan, which represents GM's big
bet it can make a small car profitably in the United States.

"If they are going to be competitive on a global scale,
they really don't have much choice but to keep Opel," said
Autoconomy analyst Erich Merkle.

Opel's workforce -- which was to be cut by a fifth under
the new owners from 50,000 -- was supposed to receive a 10
percent stake in the new company in return for 265 million
euros in annual cost concessions.

GM would have kept a 35 percent stake in the unit under the
now-scrapped deal.

GM had $13.6 billion remaining in an escrow account from
the U.S. Treasury as of October, but the terms of its bailout
by the Obama administration prohibit it from using those funds
for its overseas operations.

Brad Coulter, a restructuring specialist at O'Keefe &
Associates in Detroit, said GM's move to keep Opel suggested
"they are not under as much pressure to sell assets to raise
cash."

Earlier on Tuesday, GM reported its first increase in U.S.
sales in nearly two years. [N03411936]

Peter Morici, an economist at the University of Maryland,
said the GM board could be vindicated in the decision to keep
Opel if it can line up the financing.

"If they can get out of the German government what some of
these buyers were going to get, it could turn out to be a good
deal for them," he said.
(1 euro=$1.47)
(Reporting by Kevin Krolicki and Philipp Halstrick; Additional
reporting by Gernot Heller in Berlin, John Crawley, Jui
Chakravorty, Soyoung Kim, John McCrank, David Bailey in Detroit
and Ben Klayman in Chicago; Editing by Matthew Lewis, Gary
Hill)