Fiat Spinoff Idea Gathers Steam

A plan to spin off the cash-burning auto operations of the Fiat group was gathering steam, newspapers said on Saturday, although the question of who would fund a standalone Fiat Auto loomed large.

Fiat Spinoff Idea Gathers Steam

A plan to spin off the cash-burning auto operations of the Fiat group was gathering steam, newspapers said on Saturday, although the question of who would fund a standalone Fiat Auto loomed large.

The role of General Motors Corp. - which owns 20 percent of Fiat Auto - in any spinoff remained unclear, as did the origins of an estimated five billion euros believed to be needed by the struggling auto business to be viable on its own.

Sources told Reuters on Friday that Fiat's creditor banks discussed a spinoff at a meeting on Friday, and newspapers said investment bank Lazard - joint venture partner of Fiat's largest creditor Banca Intesa - was working on the deal.

Fiat has officially denied plans for a spinoff, but a source close to the industrial group - which also controls truck maker Iveco, insurer Toro and other businesses - did not rule out the possibility of drawing up a plan.

Fiat Auto, which is expected to have made an operating loss of about 1.2 billion euros in 2002, last year unveiled a last-ditch overhaul plan that raised political hackles in Rome with layoffs of thousands of auto workers.

Industry Minister Antonio Marzano said on Saturday that Fiat should press on with its original plan, but added that it had to keep its mind open to possible changes further down the road.

"I think they have to put their plan into action because if we continue talking about 'ifs' and 'buts' things will only get worse," Marzano was quoted as saying by the ANSA news agency.

Analysts say that separating the car unit from its parent could be a prelude to bringing in fresh capital alongside the controlling Agnelli family. A spinoff could also boost transparency at the car business and define the limits of the banks' responsibilities.

Press reports have said part of the money could come from asset sales, part from GM, the Agnellis, new stakeholders and a bourse listing for the car business.

Financial daily Il Sole 24 Ore on Saturday also said that Fiat's financial advisers, Merrill Lynch and Goldman Sachs, had begun contacts with GM about a possible spinoff. Fiat has an option to sell GM the 80 percent of the auto unit it does not own from next year.

Larger Cash Pile

Fiat shares have rallied 17 percent so far this year as speculation has swirled about rescue plans for the group, most prominently one proposed by Roberto Colaninno, famous for engineering the 1999 takeover of Telecom Italia.

Colaninno has said he expects to outline his plan to Fiat's board by the end of next week, but his advances are believed to have received the cold shoulder from the Fiat banks.

Both Il Sole 24 Ore and La Repubblica reported Saturday that Colaninno was ready to revise his plan, initially designed for the Fiat group, to address the auto unit in particular.

Colaninno's former business partner at Telecom Italia, financier Emilio Gnutti, believed to be sitting on an even larger pile of cash after Pirelli bought both investors' stakes at a premium in 2001, was cited by the media as another potential Fiat saviour.

Gnutti met with Italian Premier Silvio Berlusconi in Rome on Friday, newspapers said, shortly after Fiat's creditor banks had finished their meeting. A source close to Gnutti's investment group Hopa on Friday denied he was interested.

Fiat's board could meet by the end of January, earlier than initially scheduled, to discuss the banks' spinoff plan, Il Sole 24 Ore reported. One of the Agnelli family holding companies, Giovanni Agnelli & C., is already scheduled to hold a shareholders meeting in late January.

Fiat, whose sales and market share plunged last year, got a bit of good news late Friday when Italy's cabinet approved an extension of eco-incentives until the end of March.

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