Fiat, GM Execs Meet to Talk Possible Sale

ZURICH, Switzerland Dec 14, 2004; Sam Cage writing for the AP reported that executives from General Motors Corp. were meeting with their Fiat SpA counterparts Tuesday for talks likely to focus on the possible sale of the Italian giant's auto business.

Fiat chief executive Sergio Marchionne was expected to insist to GM chairman and chief executive Rick Wagoner that the U.S. company honor a "put option," part of a 2000 deal under which Fiat has the right to sell its car business to GM, as a deadline to exercise the option approaches.

Fiat spokesman Raffaello Porro played down the meeting.

"No announcement is foreseen about exercising the put option," he said in a statement issued after rumors circulated on the Milan exchange that Fiat might make an announcement Wednesday about its intention to use the option.

After a surge in the last few minutes of trading, Fiat share prices dropped slightly. They closed up about 3 percent at 6.05 euros ($8.06). GM shares fell 15 cents, or 0.4 percent, to close at $38.63 Tuesday on the New York Stock Exchange (news - web sites).

Earlier, GM spokesman Ruediger Assion said it was "usual" for Wagoner and Marchionne to meet.

"It's a quarterly and steering committee meeting," he added, referring to regular discussions held between the two companies as part of their existing business relationship.

GM and Fiat nevertheless appeared anxious to keep the talks under wraps.

Marchionne and Wagoner had been had been expected to hold discussions at a Zurich hotel, but there was no sign of them there. GM officials left the building without making any comment and it was unclear if Fiat officials were present.

Italian media later reported that Marchionne and fellow Fiat executives had instead flown from Italy directly to Friedrichshafen, southern Germany, to meet with Wagoner.

Friedrichshafen is on Lake Constance, on the Swiss-German border. A source close to the talks, speaking on condition of anonymity, said the meeting was taking place in Switzerland.

The outcome of talks is uncertain — it may simply signal the start rather than the end of a round of negotiations.

Under the 2000 deal, GM bought 20 percent of Fiat Auto and agreed to an option giving Fiat the possibility of selling the remaining stake if it so decides. The share size was later diluted to 10 percent after Fiat initiated a capital increase in 2003 and GM didn't participate.

The Detroit-based automaker has expressed doubts over the possibility of Fiat exercising the option, and the two companies last year agreed to postpone the trigger by one year to Jan. 24, 2005.

Taking Fiat's auto unit under its wing could be a problem for GM, which is already grappling with woes at its Opel unit in Europe. The U.S. company could find itself with a nearly identical and equally unprofitable carmaker in the same weak market.

After years of losses, Italy's largest private-sector employer is trying for a turnaround for its auto division. Fiat might have trouble with creditors if it is unable to exercise its option.

Italian news reports said GM might balk at going ahead with the option, ready to argue that some actions taken by the Italians since the 2000 deal effectively nullify the agreement.

Standard & Poor's said in a statement Tuesday it was "concerned about the potential ramifications of this situation for GM's credit quality," but that the most likely outcomes of the situation would not be too damaging to GM.

In the worst case scenario, "if GM were to fully combine its European operations with Fiat Auto's, the challenges would be daunting — due in part to the extensive product and geographic overlap between the two," S&P said. "At the very least, this would greatly complicate the two companies' ongoing restructuring efforts."

Barring a legal escape, GM could instead assume full ownership of Fiat, at a "not substantial" price, given its condition, and let it slip into insolvency, S&P said.

In several interviews, Marchionne has dismissed the suggestion that GM would get out of the deal. "Their argument, to be blunt, has no legs," he was quoted as saying by the Financial Times on Tuesday.

Analysts see Marchionne's tough-talking campaign as a poker tactic.

"It should not be assumed that selling off the remainder of Fiat Auto is the course of action that the Fiat group's management 3/8 wishes to embark upon," said Rebecca Wright, auto industry analyst at World Markets Research Centre.

"It would be hard to overstate the reaction in Italy to any decision to sell off the country's beloved Fiat Auto to the U.S. giant," she said.