Other Editorials

Fiat Fiasco

Jim Dollinger
Wednesday, March 8, 2006

Check out this article from 2002 and notice how Merrill Lynch, with representation on GM's Board of Directors, also was advising Fiat. Is this a case of conflict of interest or flat out corruption? We write off over $2 Billion, Merrill buys for $1 Billion and we later pay another $2 Billion to get out of the deal. Now we complain about legacy costs and face bankruptcy. Thanks Rick.

Fiat offloads GM stake to cut debt

Milan, Dec. 21 (Reuters): Fiat said on Friday it had sold its almost 6 per cent stake in partner General Motors Corp for about $ 1.16 billion in a move that will help it meet strict debt-slashing targets agreed with its creditor banks.

Fiat said it had sold the stake to an unidentified investment bank. A financial source said the buyer was Merrill Lynch, which is also advising the Italian industrial group on its restructuring.

A Merrill Lynch spokesman in New York declined to comment.

The two car makers said the sale would not affect an option that allows Fiat to sell its 80 per cent stake in cash-bleeding car unit Fiat Auto to GM from 2004  a rip cord analysts say is Fiats best way to get back to profit.

In a statement, Fiat said the sale of its 32.05 million GM shares, or almost 6 per cent of GM, would substantially improve its net debt, which the carmaker has pledged to cut to 3.6 billion euros by early 2003 from 5.8 billion euros at the end of September.

In October, Fiat forecast cash flow and planned sell-offs would drive net debt down to 4.4 billion euros by the end of December. Knocking another 1.16 billion euros off its net borrowing would allow Fiat to duck comfortably below the 3.6 billion-euro ceiling.

Fiat sold 20 per cent of Fiat Auto to GM for $ 2.4 billion in stock in 2000 when GM was trading at almost $ 78 per share  about double Fridays closing price of $ 37.06.

It should have a very negligible effect on the trading of GM stock, GM spokeswoman Toni Simonetti said.

Earlier this year Fiat used its shares in the worlds top carmaker to back a five-year bond. On Friday, it said that under the terms of its agreement with the investment bank, the stake sale would not affect bondholders.

GM wrote down most of its Fiat Auto stake in October as the company that was once Europes top automaker struggles to pull out of deep losses, sinking Fiats share price by about 50 per cent so far this year.

As part of a restructuring, Fiat has laid off about 15,000 workers around the world in the last 12 months, with another 2,000 chops to go in June next year when Fiat brings down the curtain on its boxy Panda car.

Fiat says the job cuts and cost savings from joint ventures with GM should help it save 1 billion euros next year. Fiat plans to invest 2.6 billion euros a year in new models until 2005.

A group of creditor banks threw Fiat a 3 billion-euro lifeline in May, demanding the Turin-based company get its net debt down to 3.6 billion euros by the time the board approves 2002 results early next year.

If Fiat fails to meet its debt target or loses its investment grade rating, the creditor banks can change their loan into equity, worth about one third of the company, which would give them equal control to the founding Agnelli family.

Fiat has been chopping away at the net debt by selling parts of its investments in energy holding Italenergia, sports car group Ferrari and the aluminum unit of castings group Teksid.

On Thursday, Fiat said it had also agreed to sell a majority stake in its customer-financing arm Fidis to four top creditor banks Capitalia, Sanpaolo IMI, UniCredito and IntesaBci.