Fiat may speed up auto unit's sale after Agnelli's death

TURIN, Italy January 27, 2003; Andrew Davis writing for Bloomberg reported that Fiat SpA, Italy's biggest manufacturer, may accelerate the sale of its unprofitable car unit when Umberto Agnelli takes over as chairman of the company that made his family one of the five richest in Italy, investors said.

Agnelli, who said last year Fiat Auto may no longer be strategic, is more likely to force General Motors Corp. to buy the remaining 80 percent of the car unit. The Agnelli family said it will seek the chairmanship for Umberto after the death of his older brother Giovanni Agnelli, who championed the auto business.

"Giovanni was the only one in the family who didn't want to sell the auto business to General Motors, so now that he is gone, it's a sure thing that they will sell," said Niccolo Pini, who helps manage about 700 million euros ($753 million) at Banca Ifigest and doesn't own Fiat shares.

Fiat's auto business, founded by Umberto's grandfather more than a century ago, lost about 1.3 billion euros last year and Fiat shares shed more than half their value. Giovanni Agnelli, who died today at age 81, was committed to management's plan to save the auto unit by firing workers and selling assets to cut debt.

"The auto business was his life. Fiat without its auto unit was something unthinkable for him," former Fiat Chairman Cesare Romiti told news agency Ansa. "I know how much he suffered over the last years because of the Fiat crisis."

Under Chairman Paolo Fresco, who said today he will step down in May, Fiat entered into an alliance with General Motors in 2000, when the world's biggest carmaker bought 20 percent of Fiat's car unit in a bid to strengthen its European business. As part of the alliance, Fiat has the right to force General Motors to buy the rest from next year.

The Fiat put option is "viewed as something that really can destroy value for (General Motors) investors," said Rod Lache, an analyst at Deutsche Bank Securities, who rates the company a "hold" and doesn't own shares. "We've never seen the merits of the combination."

General Motors spokesman Toni Simonetti said Giovanni Agnelli's death does not change the put option in any way.

Umberto Agnelli had spent much of his career running two of the family's investment companies set up to diversify the Agnellis' interests beyond the car business. He bought stakes in Club Mediterranee, French financial group Worms & Cie. and Italian bank Sanpaolo IMI.

The family today also named Umberto Agnelli as head of Giovanni Agnelli & Co., the holding company that controls all the family's investments, including its 30 percent stake in Fiat. Giovanni Agnelli died about half an hour before the start of the holding company's meeting, after treatment for prostate cancer.

"Fiat wants to sell its car business," said Paolo Wenk, who helps manage 1.3 billion euros at Banco di Sardegna in Milan. "There's less of a resistance to a sale now that Umberto is at the head of the family."

In January, former Telecom Italia SpA head Roberto Colaninno said he was considering a bid for Fiat and was seeking management control in an offer he described as "friendly." Fiat and the Agnellis rebuffed the advance and set about coming up with an alternative, backed by creditor banks, to spin off the car unit.

The banks and not the Agnellis may decide the fate of the car company, investors said.

As losses mounted and its debts grew, Fiat became increasingly dependent on its banks for financing. Last year Capitalia SpA, Banca Intesa SpA, Sanpaolo IMI SpA and UniCredito Italiano SpA extended a 3 billion-euro loan to Fiat convertible into shares that gives the lenders a say in Fresco's strategy to salvage the carmaker.

If Fiat can't pay back the loan, the banks stand to gain a stake in Fiat that could rival the Agnellis' holdings, currently 30 percent. The agreement eroded Giovanni Agnelli's influence, though he remained honorary chairman and his family still dominates the board.

Lache, the Deutsche Bank analyst, said he didn't expect Agnelli's death to affect the put option. "He's not been present at any of the crisis meetings the past couple of months," he said. The banks right now "have the biggest say."