Fiat-GM Talks End Without Settlement

Fiat said Wednesday that it had failed to settle with General Motors Corp. over an option to force the U.S. giant to buy its ailing auto unit, raising the prospect of a legal battle and sending Fiat’s shares tumbling.

The announcement came at the end of a period of mediation that began Dec. 16, with Fiat stating that it can now force GM to buy Fiat Auto, a contention GM disputes. It was bad news for Fiat, analysts say, as it creates uncertainty and blocks the company from moving ahead with turnaround plans.

Fiat shares closed at 5.86 euros ($7.64), down 5.5%. GM shares rose 67 cents, or 1.8%, to $37.55 on the New York Stock Exchange.

The Turin, Italy-based automaker said that the option -- part of a 2000 agreement that says the Italian company has the right to sell its car business to GM -- could be exercised from Wednesday until July 24, 2010.

Asked Wednesday when it might exercise the clause, Fiat declined to comment.

Fiat rejected claims by GM that the Italian company might have breached the agreement through a recapitalization of Fiat Auto Holding and the sale of a 51% stake in Fiat Auto’s consumer finance division.

But GM spokesman Tony Cervone reiterated the company’s position that Fiat committed “material breaches” of the 5-year-old agreement.

Under that agreement, Fiat can force the Detroit-based automaker to buy the 90% of Fiat Auto it does not already own.

The statement came after days of speculation that GM would pay Fiat a cash settlement to cancel the put option. But after prolonged negotiations between the two companies, neither side appeared to be willing to budge, and the prospect of GM mounting a legal challenge in a U.S. court now looms.

News that the talks had ended without an agreement fueled speculation that Fiat was pushing for more money, with estimates around 1.5 billion euros to 2 billion euros.