PSA pays GM $2.3 bln for Opel, sets first recovery goals

Laurence Frost and Edward Taylor

* Deal values Opel at 2.2 bln euros

* Will help PSA overtake French rival Renault

* Sale of Opel seals GM's exit from Europe

(Adds detail and background)

PARIS/FRANKFURT, March 6 (Reuters) - PSA Group has

agreed to buy Opel from General Motors in a deal valuing

the business at 2.2 billion euros ($2.3 billion), creating a new

regional car giant to challenge market leader Volkswagen

.

The maker of Peugeot and Citroen cars vowed to return Opel

and its British Vauxhall brand to profit, with an operating

margin of 2 percent within three years and 6 percent by 2026

underpinned by with 1.7 billion euros in joint cost savings.

"We're confident that the Opel-Vauxhall turnaround will

significantly accelerate with our support," PSA Chief Executive

Carlos Tavares said in a statement issued by the two carmakers

on Monday.

By acquiring Opel, the French group leapfrogs rival Renault

to become Europe's second-ranked carmaker by sales,

with a 16 percent market share to VW's 24 percent. Last year,

PSA and GM Europe recorded 72 billion euros in revenue and 4.3

million vehicle deliveries between them.

GM will receive 1.32 billion euros for the Opel

manufacturing business - 650 million euros in cash and 670

million in PSA share warrants.

The Paris-based carmaker and BNP Paribas will pay

a further 900 million euros for the Opel financing arm and

operate it as a joint venture, fully consolidated by the French

bank.

The sale of Opel seals GM's exit from Europe. Eight years

after coming close to selling Opel to Magna International

, the Detroit auto giant has faced investor pressure to

offload the business and focus on raising profitability rather

than chase the global sales crown currently held by VW.

After fending off 2015 merger overtures by Fiat Chrysler

with support from her board, GM boss Mary Barra agreed

to target a 20 percent minimum return on invested capital and

pay out more cash to shareholders.

The two carmakers, which already share some production in an

existing European alliance, confirmed last month they were

negotiating an outright acquisition of Opel and its British

Vauxhall brand by PSA, sparking concern over possible job cuts.

The transaction also sees GM retain most of Opel's pensions

deficit, estimated by analysts at $10 billion. Earlier in the

talks, the U.S. carmaker had sought to offload a larger share of

the liabilities, sources have said.

Some smaller pension funds will be transferred to PSA, along

with a 3 billion euro payment to cover their full settlement,

the companies said on Monday. GM will also take an accounting

charge of $4 billion to $4.5 billion in relation to the deal,

expected to close in late 2017.

($1 = 0.9432 euros)

(Additional reporting by Gilles Guillaume; Editing by Sudip

Kar-Gupta)