Fiat and GM on road to court battle - Fiat wants to sell

[Marc]

Fiat and GM on road to court battle

Fiat and General Motors moved a step closer on Wednesday to a courtroom battle after talks failed to produce an agreement on the validity of the Italian carmaker's option to sell its unprofitable and heavily indebted auto unit to GM.

The formal negotiation period, which began on Dec. 16, ended without resolution at midnight Tuesday, Fiat said. Both companies are now free to go to court to resolve the dispute, which would be heard in New York.

GM claims that Fiat lost its contractual right to sell as a result of some restructuring moves it has made. Fiat's option to sell runs until July 24, 2010, and though the formal negotiation period has ended, the two companies could still reach an accord and avoid the courtroom.

Many analysts who cover the auto industry still expect GM to pay a fee, probably between €1.5 billion and €2 billion, or $2 billion and $2.6 billion, to cancel Fiat's right to sell.

"A legal battle, which promises to be very long, is not in the interest of either company so it's likely they will find an accord," said Andrea Pasetti, a fund manager with Capitalgest in Brescia. "Nobody wants to go to the courtroom, that is clear."

Though the two companies seem to be following a road that will inexorably lead them to that courtroom, they are threatening action that they would both prefer to avoid. The Agnelli family, which controls Fiat, has said it does not want to sell the car unit and GM wants to avoid a drawn-out legal battle that could put at risk joint ventures that have been profitable for both companies.

Shares of Fiat on Wednesday tumbled 54 cents to €5.85. GM shares rose 77 cents to $37.65 in New York.

Pasetti said Fiat would be worth €7 a share if GM paid €1.5 billion to resolve the dispute.

Fiat's right to sell the car unit, known as a put option, was part of an agreement signed by the two companies in 2000 that also set up the joint ventures. GM has said that Fiat voided the deal by selling its finance arm, Fidis, and by recapitalizing the car unit. Fiat disputes both points. A court case would focus on establishing the validity of GM's claim.

Fiat Auto carries €8 billion in debt and has posted an operating loss in five of the past six years. GM wants to avoid taking on the auto unit; the U.S. company is already losing money in its core automaking business and is facing mounting costs to cover its pension plans. Being forced to buy Fiat Auto or to pay a significant fee to cancel the put option could undermine investors' and ratings agencies' perception of GM's creditworthiness.

In the original agreement, Fiat got the option to sell inserted into the deal because DaimlerChrysler had shown interest in buying 100 percent of Fiat Auto. In the five years since Fiat and GM signed the agreement, Fiat's car unit has stumbled under increased competition.

[Downey White]

Marc: I was posting an article on the same issue...

I was abroad, just came back today and, as you all guess, Italian newspapers are giving plenty of space to this GM Vs FIAT issue.

I's not my sector so probably I'm not able to get all the different opinions and views, anyway I feel that

1. The issue will never see a court - probably some extra-court agreement involving 1,something billions $...

2. IMHO, FIAT should have been sold years ago, as the automotive crisis is polluting the economy of an entire city (Torino, where FIAT HQ are located since its foundation), so that hope for a last-minute recovery is actually stopping any other economic structure to appear. Furthermore, state aids in the last 50 years and management mistakes have definitely compromised any possibility of a positive recovery

3. FIAT is certainly a national treasure, anyway I feel that 99% of the political claims to save automotive industry because of national/strategic reasons are driven by the will of postponing any decision so that it will be the bext government to cope with the issue.. in the meanwhile, no changes are going on and the crisis is getting worst every month

Just my obviously