Fiat considers the splits

9 January 2003 By Hugo Dixon Follow @hugodixon

A selfadministered breakup of the troubled conglomerate makes industrial sense. It would also scupper rival breakup plans from outsiders. The bigger question is whether the numbers add up. To finance the plan, E7bn in new cash would be required. That’s possible but not easy.

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Fiat is planning to split itself into two, according to a person familiar with the situation. The scheme would also involve a big recapitalisation of the struggling Italian conglomerate.

Under the plan, which has yet to be finalised, Fiat would create two separately quoted companies. One would own its core automotive business; the other would own its remaining businesses, such as the CNH farm equipment business and the Iveco truck arm. Both businesses would eventually get new management. It has not been decided yet where Fiat's majority stake in Ferrari would be placed.

The scheme, which has been put together to help stave off a financial crisis, would involve recapitalising the automotive business so that it ended up with a E7bn cash pile. That would be used to finance longdelayed investments and cover operating losses.

E5bn of the E7bn cash would come from the rest of the Fiat group. The remaining E2bn would come from other partners. Fiat is hoping, in particular, to persuade General Motors which already owns 20% of Fiat Auto to contribute.

The other part of the Fiat group would finance its E5bn contribution through a E3bn programme of asset sales and a capital increase of up to E2bn. Two main assets are slated for sale: Fiat Avio, the automotive business; and possibly Toro, its insurance arm.

Under the plan, the Agnelli family which control a third of Fiat would contribute their share of the E2bn capital increase. Fiat's banks would underwrite the rest.

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