(1888PressRelease)
May 04, 2009 - Chief Executive Officer Sergio Marchionne will seek “over the next few weeks” to assess the viability of a combination and a new company, the board of the Turin, Italy-based carmaker said yesterday in a statement.
GM says it’s open to offers for the Germany-based Opel division, which is running out of cash and seeking 3.3 billion euros ($4.4 billion) in German aid. Another potential investor is Magna International Inc., North America’s largest auto-parts maker. A spinoff of Fiat Automobile, which accounted for 45 percent of Fiat’s 2008 sales, would leave Italy’s largest manufacturer with assets such as the CNH Global NV agricultural and construction-equipment unit, and Iveco trucks.
“Instead of defending its niche market in Italy, Fiat decided to be a predator worldwide,” Luca Peviani, managing director at P&G Sgr in Rome, said. “Italy will remain just an appendix of the empire.”
Fiat already plans to take control of Chrysler, based in Auburn Hills, Michigan, in a deal announced by President Barack Obama last week.
Marchionne said last week he regards Opel as an “ideal partner” and would concentrate on buying that part of Detroit- based General Motors after the unveiling of the Chrysler agreement. A combined company would have 80 billion euros in annual sales, the board said yesterday.
Shares Gain
“The group would evaluate several corporate structures, including the potential spinoff of Fiat Group Automobiles and the subsequent listing of a new company which combines those activities with the activities of General Motors Europe,” it said in the statement.
Fiat rose as much as 56 cents, or 7.5 percent, to 8.08 euros and traded at 8 euros as of 1:15 p.m. in Milan, giving the carmaker a market value of 9.6 billion euros.
A spinoff or an initial public offering of the auto division “could unlock Fiat Auto value and could eliminate the risk of rights issue,” Massimo Vecchio, an analyst at Mediobanca Securities in Milan who has an “outperform” rating on Fiat, wrote in a note today.
Marchionne is scheduled to present Fiat’s plan for Opel to German Economy Minister Karl-Theodor zu Guttenberg and Foreign Minister Frank-Walter Steinmeier in Berlin today. Speaking to reporters before the meetings, Guttenberg said the discussions will be “very open.”
Latin America, China
Fiat is also looking at GM’s operations in emerging markets, people familiar with the matter said. GM is negotiating with automotive companies and investors interested in Opel and is separately talking to Fiat about tie-ups involving GM operations such as those in Latin America, they said.
Turin-based Fiat sold 2.15 million autos last year and adding Auburn Hills, Michigan-based Chrysler will lift the total toward 4 million. While that’s still short of the number Marchionne says will guarantee long-term viability, GM last year achieved 1.5 million sales at Opel, 1.3 million in Latin America and 1.5 million in the Asia-Pacific region.
“If Marchionne gets GM’s organization in China, he potentially has the volume he reckons he needs,” said Peter Schmidt, an analyst at Automotive Data in Leamington Spa, England. “Or GM Russia, and use that as a springboard to neighboring countries.”
‘Industrial Plan’
Magna last week held talks with German officials about a purchase of Opel. Magna and carmaker OAO GAZ, owned by Russian billionaire Oleg Deripaska, are interested in taking over the bulk of GM’s European unit, the people said. Magna declined to comment after initially denying interest.
GM is reviewing potential bids for Opel, the German unit’s managing director Hans Demant told reporters in Eisenach, Germany today. Offers for Opel still need to be refined, and a final decision will be taken in the coming weeks, Steinmeier said at the same briefing.
“We are not just talking about Opel but we’re talking about Germany’s position as an industrial center,” Steinmeier said.
Bidders for Opel, based in Ruesselsheim outside Frankfurt, will meet with GM this week to seek clarity over financial data before each presenting an “industrial plan,” Guttenberg said April 28.
Other parties interested in Opel include sovereign wealth funds Abu Dhabi Investment Council and the Government of Singapore Investment Corp., and three private-equity funds, according to one of the people familiar with negotiations.
Union Opposition
GM and Chrysler have been kept afloat with U.S. government aid. As part of the deal for Chrysler to seek court protection and begin handing over the reins to Fiat, the No. 3 U.S. automaker will get as much as $3.5 billion in operating loans from the government. Fiat has agreed to make engines and cars in the U.S.
Fiat will start with 20 percent of the new Chrysler, and gain another 15 percent by hitting three goals: providing international distribution for Chrysler vehicles, building a car that gets 40 miles per gallon in the U.S. and making a new fuel- efficient engine at a U.S. plant. The Italian manufacturer can then buy an additional 16 percent when government loans are repaid.
Unlike the Chrysler deal, in which U.S. and Canadian unions agreed to concessions to help save the company, a Fiat purchase of Opel is opposed by German unions. The state of Rhineland- Palatinate, where Opel has 3,400 workers at an engine factory, also is against a tie-up.
GM may also be forced to sell other assets as it faces filing for bankruptcy protection unless it reorganizes out of court by June 1.
###
