Fiat Chairman Vows to Stay as Battle Lines Drawn

Fiat Chairman Paolo Fresco vowed today to fight pressure to quit ahead of his planned retirement next year as Italy's most influential business and political interests battled for control of the loss-making industrial giant.

Fresco, who built the carmaker into an energy-to-insurance conglomerate, said he would retire next July but had no plans to hand in his resignation this week as was expected after a public lambasting by Prime Minister Silvio Berlusconi.

"Pretty much everyone is seriously trying to stop us from making it. From the first day of Fiat's crisis we've been in a circus...a veritable lynching of the company," Fresco told la Repubblica daily, branding Berlusconi "mad".

Fiat Chief Executive Gabriele Galateri quit on Tuesday after just six months on the job amid a wave of strikes protesting layoffs, which had also raised political hackles in Rome.

The upheaval underscores growing hostilities at Fiat which is struggling to slash its debt and restore profits at Fiat Auto before an option to sell its remaining 80 percent stake in the car unit to General Motors takes effect in 2004.

Sources say Fiat's controlling Agnelli family and bank Mediobanca have concocted a plan which could scupper the "put" and keep the Italian icon out of U.S. hands. A manager close to Mediobanca, Enrico Bondi, is widely touted to be named as Galateri's successor at a board meeting on Friday.

However, investors, credit agencies and creditor banks - Mediobanca's top comptetitors - have lent some support to the Fiat management which is trying to tackle the group's problems by implementing a restructuring including mass layoffs.

Fiat shares were up 3.35 percent at 9.01 euros at 1446 GMT, strongly outperforming the 0.62 percent decline in the DJ Stoxx European auto index. Mediobanca, which has links to Berlusconi's business empire, was up 2.4 percent.

Under Pressure

Media have reported Fresco is under pressure from Umberto Agnelli, who has been pulling more weight since his elder brother, Fiat's honorary president Gianni Agnelli, fell ill.

John Elkann, Gianni Agnelli's grandson and heir, contested the shake-up at a board meeting on Tuesday, some papers said.

Out of the boardroom, Fiat's main four creditors, which have imposed a debt-cutting, cost-saving restructuring in exchange for a three billion-euro loan, warned the plan could be jeopardised by top management changes.

In an interview with la Repubblica, Fresco agreed that a re-shuffle would put back negotiations he had started, saying "we have made good progress...but believe me, this is not a company that has much time to waste".

Fresco, a former top manager at General Electric, put together the deal to sell 20 percent of Fiat Auto to GM in 2000, agreeing a "put" option to sell the U.S. giant the rest from 2004. The put option is a key part of Fiat's valuation.

Sources say Mediobanca and the Agnellis have joined forces to try to put together Fiat's Ferrari-Maserati - in which Mediobanca controls 34 percent - and Fiat Auto's sporty Alfa Romeo brand to create a new luxury car unit.

Political and financial sources in Italy told Reuters the new company could link up with Volkswagen, but the German group said it had no interest in Fiat assets beyond a possible technical joint venture between its Audi arm and Maserati.

Future Of Fiat-Gm

A GM spokeswoman said on Tuesday that Fiat would need the go-ahead from the world's largest carmaker before Alfa Romeo could drive out of the Fiat Auto stable but declined to comment on whether such a move would cancel the put option or draw opposition from GM.

"We find it hard to credit that Fiat would jeopardise the put to GM as it must recognise the challenges and risks inherent in its auto business," Merrill Lynch analysts said in a note. Merrill Lynch is advising Fiat on its restructuring.

Fiat, once Europe's biggest carmaker and still Italy's best known company, has been trying to turn around a slump in car sales which has landed the group with widening losses. It has also struggled to sell assets to raise cash to and cut debts.

But other analysts pointed out that a cancellation of the put would be good news for GM, which is struggling to make other new buys bear fruit, but said VW was unlikely to be the answer.

"We do not think that an acquisition of a stake in Ferrari is likely as VW already owns a full stable of brands. There would also be significant overlap with Ferrari competing with Lamborghini and Alfa with Seat," they said in a note.