Fiat, GM in Negotiations Over Terms of Partnership
Fiat of Italy can try to force the sale of its automotive unit to General Motors Corp. beginning today, a move that the world’s biggest automaker does not want and that might lead to a downgrade of its $291 billion of debt.
Fiat Chief Executive Sergio Marchionne and General Motors CEO Rick Wagoner are working within a mediation period in which to reach a solution. If none is found within 10 days, either side can take the matter to court in New York.
“Fiat and GM know that the best solution for both of them is to find an agreement,” said Edoardo Mosca, an analyst at Nuovi Investimenti in Biella, Italy. “I don’t think Fiat will exercise the put option on Monday.”
Fiat Auto has 8 billion euros ($10.4 billion) of debt, which Detroit-based GM might be forced to assume in a takeover. That could trigger a rating downgrade, as could an agreement by GM to make a large payment to resolve the conflict, Standard & Poor’s analyst Scott Sprinzen wrote last month.
General Motors bought 20% of Turin, Italy-based Fiat Auto in 2000 as part of a plan to link engine and car development and production. A capital increase by Fiat in 2003 reduced GM’s stake to 10% -- a move that, coupled with an asset sale, voids the Italian company’s option to sell the automotive unit, General Motors says.
“We still assert that the put option is invalid” because Fiat “has breached the master agreement between us through their own actions,” said Toni Simonetti, a GM spokeswoman. She declined to comment on when the mediation period would end.
A Fiat spokesman, who declined to be identified, would not comment.
Shares of General Motors have fallen 30% in the last 12 months as the automaker loses market share in the United States and Europe to competitors including Toyota Motor Corp. of Japan. Fiat’s shares have fallen 3.5% in the same period, giving the company, Italy’s largest manufacturer, a market value of 5.5 billion euros.
Last week, General Motors wrote off the last $220 million in pretax value of its Fiat Auto unit shareholding. It had bought the stake for $2.4 billion. The company’s debt has a BBB-minus long-term rating with S&P;, just one step above junk status. S&P; said Jan. 14 that its concerns about General Motors had increased “incrementally” and that it was reviewing its “stable” outlook for the debt rating.
“This is another arrow shot into them,” said Daniel Genter, president of Los Angeles-based RNC Genter Capital Management, which manages $2 billion, including General Motors notes. “They’ve had the credit watch change, rising rates, especially short-term ones, that will negatively affect them. This would compound the issues.”
