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The latest
twist in the fast moving Fiat and GM discussions has
come today with media reports claiming that GM may be
prepared to hand control over its operations in Europe
and Latin America in exchange for an equity stake in
Fiat.
The sensational twist to the drama is reported
in the New York Times today and comes just four
years after GM paid Fiat US$2 billion to extract
itself from a option to buy the Italian
carmaker at the end of an unsuccessful equity
swap.
Last weekend, just days after successfully
announcing it was to form alliance with ailing
American carmaker Chrysler, Fiat CEO Sergio Marchionne
unveiled ambitious plans to spin off the Fiat
Group's automobile
manufacturing division and merge it with GM
Europe's Opel/Vauxhall unit as well as the 20
percent stake that Fiat has taken in Chrysler.
Contradictory reports this week have said that
Swedish niche carmaker Saab may also be included
in the mix, with Marchionne indicating a
tentative interest in its future today. He met
with key German government ministers and Opel's
union top officials for discussions about the
future of Opel on Monday before flying
straight to the U.S. for further talks with G.M.
and U.S. treasury Department officials.
As
well as striking a deal with Opel/Vauxhall, Marchionne is
keen to gain control of GM's lucrative Latin
American operations and merge them into the
proposed new
Opel-Fiat entity where they would be tied up
with Fiat's own major manufacturing base in the
region. Fiat's biggest area of operations
outside Italy is in fact in Brazil, which is also home
to its largest global factory, Betim. However,
while it is the market leading brand in Brazil for new vehicle
sales it has hardly made a dent in other key
regional markets, such as Mexico, where GM has
strong representation.
According to the New York Times in a
report published on its website today Fiat could
gain control of both GM's European and Latin
American operations in exchange for GM taking up a
new equity stake in Fiat. GM is at the moment rushing to meet at June 1
deadline to come up with a viable restructuring
plan or follow Chrysler down the path of a
court managed Chapter 11 bankruptcy.
Quoting sources
in the know, the New York Times says that
Fiat would be prepared to give up less that 10
percent of its stock to GM in exchange for these
operations while GM is holding out for
30 percent. The newspaper also says that GM is
fully aware of the value of its Latin American
operations as a 'bargaining chip' in the talks.
In a separate newspaper interview Marchionne
admitted that GM's Latin American operations
would be a excellent fit for a new expanded
group. "Including GM Latin America in the deal
would be the easiest way to add value to the
transaction," the Fiat CEO said. He said that GM
was reluctant to give up its Latin American
operations and that at the moment the two
companies were working on valuations of the Fiat
and Opel divisions. "We are still working on
that. That’s why we need bankers."
Marchionne also said that he will become CEO of
Chrysler, having finally tied up last Thursday
the alliance first proposed in public in late
January. Chrysler is now going through a court
overseen restructuring process. “Chrysler is on
track to re-emerge from bankruptcy in 60 days,”
Marchionne commented during an interview. “I
will become Chrysler CEO after that.”
If
GM was to take an equity stake in Fiat it would
mark a remarkable turnaround as just four years
a previous equity swap between the two carmakers
ended in acrimony and rancour. In March 2000
Fiat Chairman Paolo Fresco and GM CEO Jack Smith
announced that GM would trade 5.1 percent of its
stock, worth roughly US$2.4 billion at the time,
for 20 percent of Fiat's automotive
manufacturing division (which excluded the
Ferrari and Maserati units). GM offset the new
issuance through US$2.4 billion in new
repurchases of common stock, while the valuation
of Fiat's Auto Division at the time at US$12
billion was regarded as 'generous' at least by
industry watchers. The success of the deal in
Fiat's favour was down in part to the guiding
hand of Fiat's legendary former Chairman Gianni
Agnelli who steered the negotiations from the
background. He was credited with inserting the
famous 'put' option that could have forced GM to
buy out the remaining 80 percent of Fiat Auto.
With Fiat and GM failing to make a success of
the alliance that had promised so much in terms
of global market synergies, common purchasing,
and joint technological development, the two
parties quickly fell out and with GM writing off
its 20 percent stake in Fiat Auto (firstly
written down to 10 percent after a capital
increase) it was left to new Fiat CEO Sergio
Marchionne to extract US$2 billion from GM in
exchange for ripping up the 'put' option as the
partnership came to an antagonistic end, a slice
of funding that he successfully used to help
turn Fiat's waning fortunes around.
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