Bill Pugliano
Shareholders of Fiat SpA approved a plan to split the company into separately traded auto and industrial companies, the most sweeping change in the industrial giant's 111-year history.
The breakup would allow the car side of the Italian industrial group to form closer ties with Chrysler Corp. or other auto companies.
The shareholder vote on Thursday in Turin, Fiat's headquarters, went easily in favour of chief executive officer Sergio Marchionne's plan to split Fiat in two. The de-merger will see the new Fiat, which will retain the Fiat SpA name, hold only the car brands - Fiat, Alfa Romeo, Lancia, Ferrari, Maserati - plus the 20-per-cent investment in Chrysler acquired last year. Fiat Industrial SpA will hold the farm, construction, truck and marine engine divisions. Fiat, through CNH, is one of the world's largest makers of tractors and other agricultural equipment.
Current investors will trade one Fiat SpA share for one share in each of the two new companies, which will begin trading on the Milan stock exchange in January. The debt will be split evenly between the companies. In 2009, Fiat group had net debt of €4.4-billion ($5.9-billion), sales of €50.1-billion and a reported loss of €848-million. Mr. Marchionne will remain head of the auto company - he is also CEO of Chrysler - and will name a CEO of Fiat Industrial by the end of the year.
"From an industrial and financial point of view, this [breakup]is the only way to ensure the best strategy to develop each business," he said at the shareholders' meeting.
Mr. Marchionne, who was born in Italy and raised in Canada, unveiled the de-merger idea in April. He described Fiat's awkward tractors-to-sports-cars conglomerate status as a "thorn in Fiat's side" and proposed cutting the company down the middle. Doing so, he said, would give each side the full freedom to pursue its own goals, including forging alliances, without fear of overshadowing the other side of the business.
Analysts think the split was designed to protect the industrial company more so than the auto company. The auto side, they said, requires enormous investment for new models and productivity gains and had the potential to drag down the industrial side.
"We see the industrial business of Fiat as a jewel inside the group," Deutsche Bank analyst Jochen Gehrke wrote in a note published Tuesday. "The implied Fiat auto equity value remains negative at the current share price."
He said Fiat Industrial's market value could reach €13-billion, compared with €3-billion for Fiat's auto businesses. At Thursday's share price, the Fiat group had a market value of €12.9-billion, up 16 per cent over the year as truck and tractor sales bounced back.
Analysts are generally less favourable on the prospects for Fiat's auto business. Fiat loses money in Europe but makes money overall, thanks to rising sales in Brazil, where it expects to sell one million vehicles a year by 2014. In spite of the profits, Fiat faces a daunting 2010 and 2011.
Cash-for-clunkers schemes across Europe allowed Fiat to muddle through 2009. But sales are now falling as cash-strapped governments withdraw the incentives. Most European car companies reported falling year-on-year sales in August. Fiat suffered a hefty 24-per-cent decline, while the overall market was down 12 per cent, according to data released Thursday by the European Automobile Manufacturers' Association.
Fiat is struggling to turn around its ailing Alfa Romeo division and is trying to reinvent Chrysler. "Fiat Auto and Chrysler will be very vulnerable in the future," said Ferdinand Dudenhoeffer, the head of the Centre for Automotive Research at the University of Duisburg-Essen in Germany. "They do not have a lot of money to put into new products."
With the auto industry's consolidation phase winding down, it doesn't seem likely that Fiat will get absorbed into a larger car group, Mr. Dudenhoeffer said. But he didn't rule out a takeover offer for Fiat in a few years from a Chinese or Russian auto company if the deepening Fiat-Chrysler partnership fails to produce value.
Eric Reguly