Fiat split seen accelerating tie-up with Chrysler

By Lisa Jucca and Stefano Rebaudo

MILAN (BestGrowthStock) – Italy’s Fiat set its sights on a majority stake in U.S. carmaker Chrysler on Monday after completing a long-planned demerger of its carmaking activities from its truck and tractor business.

The demerger is a key part of Fiat Chief Executive Sergio Marchionne’s efforts to revamp Italy’s biggest industrial group with the aim of boosting growth and helping forge alliances.

Fiat already owns 20 percent of Chrysler and the spin-off of its truck and tractor division now known as Fiat Industrial

clears the way for it to increase its stake in Chrysler, creating a bigger transatlantic carmaking group.

“If Chrysler is listed this year, we should think about speeding up the option of increasing our stake,” Marchionne, wearing his trademark dark-blue jumper and a light-blue shirt with no tie, told reporters as the new Fiat SpA and Fiat Industrial shares started trading on the Milan bourse.

Marchionne, who is spearheading the biggest restructuring ever at century-old Fiat, told reporters the group had no plans at present to merge Fiat and Chrysler but said Fiat was considering hiking its stake to 51 percent in 2011.

Fiat and Fiat Industrial shares were trading at a combined market value slightly above the old Fiat group’s capitalization of 19 billion euros ($25.4 billion).

The split, which main investor John Elkann has called a defining moment in the history of the Italian carmaker, is also expected to increase the chances of a full merger with U.S. carmaker Chrysler, which Fiat bought into in 2009 when the U.S. group nearly collapsed.

“Marchionne’s planned demerger has already had a positive effect and I believe this will continue,” said Giulio Battisti, a fund manager at Horatius Sim.

“We expect more interest in Fiat car shares in view of further developments in 2011, such as the option of acquiring control of Chrysler, a surprise on the upside for Chrysler’s results and a possible IPO,” he added.

UNLOCKING VALUE

At 1225 GMT Fiat SpA was trading at 6.94 euros while Fiat Industrial stood at 8.8 euros. Fiat’s last closing price before the split was 15.43 euros, up 50 percent from a year earlier in view of the spin-off.

The demerger, unveiled in April, aims to unlock value in Fiat’s shares, which had been capped by a 20-25 percent conglomerate discount, and give the groups more options.

“In the face of major developments in the market, we could not continue to keep together two sectors that do not have any economic or industrial tract in common,” Marchionne said.

“The demerger will allow Fiat and Fiat Industrial to focus on their own business … Each will be able to follow its own path,” he said from the Italian bourse’s headquarters in Piazza Affari, which featured for the occasion some massive trucks and tractors from Fiat Industrial’s Iveco and CNH divisions.

In the short run Fiat will focus on building on its stake in Chrysler and competing on world markets. Longer term it could generate value by deals such as the potential listing of luxury car brand Ferrari and a sale of parts business Magneti Marelli.

As part of Marchionne’s plans, Fiat could invest up to 20 billion euros in struggling Italian carmaking plants to boost productivity. Marchionne has already gained two landmark accords with unions to increase shifts and limit strikes and benefits.

“There’s been more volatility in Fiat and that’s where we should see more price movement over the coming weeks,” said Davide Manenti, a fund manager at Nuovi Investimenti Sim.

“It’s linked to greater uncertainty from the Chrysler issue and the car market outlook in Europe and the U.S.”

Marchionne said Chrysler’s results in December had been good and said Fiat’s car sales in the month, due out later on Monday, were slightly better than a 23.8 percent fall in November.

(Additional reporting by Stephen Jewkes and Antonella Ciancio; Editing by David Holmes)

Fiat split seen accelerating tie-up with Chrysler