Fiat shareholders approve splitting industrial from auto, creating big player with Chrysler

Fiat shareholders approve plan to split company

TURIN, Italy — Fiat shareholders on Thursday approved the separation of the auto and industrial vehicle businesses into two distinct companies, a key step toward CEO Sergio Marchionne’s goal of creating a global car company with Chrysler LCC.

The demerger marks a historic shift for Fiat, Italy’s largest employer, which was founded 111 years ago as an auto company and grew into a conglomerate encompassing a broad range of products all powered by engines, from Ferrari sports cars to CNH farm equipment.

Marchionne told shareholders at an extraordinary assembly that the Fiat Group Autos, thanks to the partnership with Chrysler, had reached a critical mass that will allow it to operate without the support of the industrial unit

“Fiat Group Automobiles is destined to become, in combination with Chrysler, a leading global producer, reaching the threshold of 6 million cars a year by 2014,” Marchionne said.

Later, in remarks to reporters, he called it “a beautiful day for autos.”

Fiat took a 20-percent share in Chrysler last year in exchange for clean-engine and small car technology, as well as management know-how. Marchionne said he expects an IPO of Chrysler by the second half of next year, by which time Fiat is expected to have a 35-percent stake in the U.S. automaker.

Fiat’s share will grow to 25 percent by the end of this year or the beginning of 2011, when it launches the popular Fiat 500 in the United States, Marchionne said. Fiat has an option to buy another 16 percent, for a 51 percent share. That step is conditional on first meeting targets set by U.S. Treasury, and then the payback of government loans to Chrysler.

The spinoff of the industrial side, which would take effect Jan. 1, will create Fiat Industrial SpA, comprising CNH farm and construction equipment, Iveco trucks and FPT Industries and Marine activities. Fiat Industrial will have two chief executives, one for CNH and one for Iveco, Marchionne said. CNH is traded in the United States, and is therefore legally required to have its own management structure.

Fiat SpA, on the other hand, will include Fiat Group Autos, the owner of Fiat, Alfa and Lancia, as well as Maserati and 85 percent of Ferrari, plus components and other related assets. Marchionne will remain CEO of Fiat SpA, alongside Chrysler, and chairman of Fiat Industrial.

Marchionne said Fiat would like to buy back a 5-percent share of Ferrari from the Mubadala Development Co. in Abu Dhabi, to restore its historical 90-percent share in the sports and Formula 1 carmaker.

“How we get there and how long it takes is something we have to discuss with our shareholders,” Marchionne said, noting the group had been “incredibly good shareholders” and that he wanted to retain their involvement in the brand.

He also confirmed that there would be management changes at both the industrial and auto companies in the next three to four months.

Marchionne forecasts the auto company will have revenues of €64 billion ($83 billion) by 2014, double the expected 2010 levels, while Fiat Industrial revenues are projected to be €29 billion, from an expected €19 billion this year.

“From an industrial and financial point of view, this is the only way to assure to each business the best strategic development,” Marchionne said. “It is a solution that responds to the logic of growth, of autonomy and efficiency. The two groups that emerge from the demerger will have the maximum freedom of movement, also in the case of future alliances.”

The demerged company will be quoted on the Milan Stock Exchange, with each shareholder receiving one share in each of the new companies.

The operation is backed by the Agnelli heirs, who control 30.44 percent of Fiat shares.

“The assembly will give life to two strong Fiats, with ambition and goals that the people who work here are ready to realize,” said Fiat Chairman John Elkann, who also heads the Agnelli heirs’ holding company.

Morgan Stanley valued the demerged auto company at €9 billion and the demerged industrial company at €7 billion in a report released earlier this month. It valued auto shares at €7.30 and industrial shares at €5.80 for a total of €13.10, but added that synergy from Chrysler would boost the total share value to €18.50.

Fiat shares were trading down 2.2 percent at €10.21 on Thursday.

The independent CUB union protested the plans outside Fiat headquarters on Thursday, saying the move would effectively move Fiat autos to the United States and charging that Fiat hasn’t maintained its promises to workers.

Marchionne is facing intense union pressure in Italy over efforts to liberalize works rules in Fiat plants to ensure its place as a global competitor. In exchange, Marchionne, who took over Fiat in 2004, has pledged to invest €20 billion in Italian plants. But he already has decided to move production of a minivan to Serbia from Italy because of union intransigence, while going ahead with investment in a Naples plant to move production of the new Panda hatchback from Poland.