Nov. 22 (Bloomberg) -- General Motors Co. agreed to
purchase Ally Financial Inc.’s international auto-finance
businesses in a $4.2 billion deal that will give the carmaker an
opportunity to expand outside North America.

The sale includes operations in Europe and Latin America as
well as Ally’s 40 percent stake in an auto-lending joint venture
in China, the Detroit-based companies said yesterday in separate
statements. The China business wasn’t among non-U.S. assets that
Ally said in May it was seeking to divest.

GM, which counts the U.S. government as its biggest
shareholder, is seeking to reverse losses in Europe and a
turnaround for its South American results after a $122 million
operating loss in that region last year. The automaker, led by
Chief Executive Officer Dan Akerson, relies on North America for
most of its earnings and is looking to diversify revenue
sources. The deal also bolsters GM’s in-house financing arm.

The acquisition is “great” for GM, Matthew Stover, an
analyst at Guggenheim Securities LLC, said before the agreement
was announced. “Regardless of what auto companies say when they
sell their captive finance arms, having a captive finance arm
allows you to be much more flexible, responsive, profitable and
competitive when you play in the market.”

Narrowing Focus

Ally CEO Michael Carpenter, 65, is selling assets as he
seeks to repay taxpayers for a $17.2 billion rescue during the
credit crisis. He’s narrowing the focus of his firm, formerly
known as GMAC Inc., to auto lending and U.S. banking. GM owned
GMAC until 2006, when the automaker sold 51 percent of it to
Cerberus Capital Management LP.

Ally sold its international businesses, including two
earlier deals, at a 21 percent premium to their tangible book
value, the company said in yesterday’s statement. Divesting the
units may help Ally repay two-thirds of the government rescue,
Carpenter said in a May interview. In October, he agreed to sell
a Canadian unit to Royal Bank of Canada in a cash deal providing
$4.1 billion in proceeds. Ally also agreed to sell a Mexican
insurance business to Ace Ltd. for $865 million.

“We are focused on completing each of these transactions
and evaluating options to return capital to the U.S. Treasury,”
Carpenter said in the statement. “Going forward, we remain
squarely focused on further strengthening and growing our
leading U.S. automotive services and direct-banking
franchises.”

The transaction price includes a $550 million premium to
the units’ roughly $3.7 billion tangible book value as measured
at the end of September, Ally said.

Tangible Book

The sales raised a total of $9.2 billion, or $1.6 billion
more than tangible book, a measure of what investors are willing
to pay for a firm’s equity after removing intangible items such
as goodwill and brand names that would have little value if the
company went out of business, according to the statement.

Acquiring some of Ally’s assets would help GM offer
competitive loans in South America, where about 50 percent of
car sales are financed, Jaime Ardila, president of that region
for GM, said last month in an interview in Sao Paulo. The
automaker, the biggest in the U.S., said acquisition of Ally’s
units helps expand on the success of GM Financial, its growing
credit-arm.

“In many markets our financing penetration rates are lower
than those of our competitors that have captive finance
companies,” Chief Financial Officer Dan Ammann said yesterday
in a conference call with reporters. “By having this business
back in-house we will be able to drive significant profitable
growth for the company around the world.”

Global Sales

Adding Ally’s operations will allow GM Financial to cover
customers and dealers in markets that comprise 80 percent of the
company’s total global sales, the automaker said in a statement
on its website. In addition to China, the purchase includes
operations in 13 countries: Brazil, Mexico, Colombia, Chile,
Germany, the U.K., France, Italy, Belgium, the Netherlands,
Sweden, Switzerland and Austria.

GM is introducing products around the world, including 23
new vehicles in Europe, Ammann said.

The automaker seeks a balanced approached between its in-house lending and outside bank partners, Ammann told analysts on
Oct. 31. GM Financial’s assets will double to about $33 billion
and liabilities, including consolidated debt, will increase to
$27 billion from about $12 billion, the company said yesterday.
The Ally acquisition should add $300 million to $400 million to
GM Financial’s annual earnings before taxes, GM said.

European Losses

Third-quarter profit at GM dropped 13 percent to $1.83
billion as losses in Europe pressured results. The firm has
posted losses in Europe totaling $17.3 billion since 1999 and
said it wants to break even on the Continent by mid-decade.

GM climbed 21 percent this year to $24.60, outpacing the 11
percent advance of the Russell 1000 Index. The stock has
declined 25 percent since its November 2010 initial public
offering. The U.S. government owns a 32 percent stake in GM, a
legacy of the company’s 2009 federal bailout and bankruptcy.

The transaction is expected to close next year in stages
and must be approved by regulators, Ally said in the statement.
Evercore Partners Inc. and Citigroup Inc. advised Ally.