The Agnellis are giving the thumbs down to Italy. The country's premier industrial family's plans to merge Fiat Industrial SpA and CNH Global NV, its U.S. subsidiary, will result in a $13-billion (U.S.) Dutch-domiciled company listed in New York. In itself, that is only a middling blow to the national psyche. But it is likely to herald a full takeover of Chrysler by Fiat Auto, with its listing moving across the Atlantic too. The loss of that icon, in the midst of a euro crisis that threatens to suck in Italy, would be a massive hit.
Italy may complain but it is largely to blame. The country has stood still for a decade. Competitiveness is sluggish. Labour laws have strangled business. Foreign direct investment has stagnated. The stock market has been a byword for Byzantine deals that disadvantage minority investors. And now the crisis has led to a partial credit crunch that has pushed up funding costs.
The Agnellis, of course, were themselves part of the old system in previous generations – often giving minority investors a raw deal. Some of that is apparent in this proposed deal too. CNH minority shareholders, who own 12 per cent of the agricultural equipment group, will not get cash; nor will they get a meaningful vote as Fiat Industrial will vote its 88 per cent in favour of the merger. What's more, long-term shareholders will get double votes, allowing the Agnellis to maintain control of the combined group.
It is easy to see why the family is keen on the proposed merger: The new entity should have access to cheaper equity and debt finance. Similar thinking is likely to apply when the Agnellis finally scrunch Fiat Auto and Chrysler together, although in that case there should be industrial as well as financial logic. With Chrysler, Fiat Auto may also need to offer some cash to the United Auto Workers which has a 41.5 per cent stake.
There's nothing Italy can do to stop the Agnellis moving Fiat Industrial's or Fiat Auto's domicile offshore. But it should draw the lesson that much more impetus needs to be put behind Prime Minister Mario Monti's reform. Otherwise, Italy really will become an industrial backwater.