Fiat Industrial proposes CNH farm business merger

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By COLLEEN BARRY, Associated Press

MILAN (AP) — Fiat Industrial Chairman Sergio Marchionne is seeking a full merger with U.S.-based CNH farm and construction vehicle business, in a move that would shift the company's capital center to the U.S. and drop the Fiat name.

But Marchionne, who is also CEO of the Fiat and Chrysler carmakers, cautioned Wednesday against considering the deal a blueprint for a future merger of the two automakers, which are in a three-year partnership.

Under the Fiat Industrial-CNH proposal, the combined company's shares would be traded on the New York Stock Exchange with a secondary listing in Europe — but not Milan where it is currently traded.

The merged Fiat Industrial and CNH would likely not carry the Fiat name, Marchionne told analysts. But he wrote in a letter to Fiat Industrial employees that the operational structure will not change.

Shares in Fiat Industrial, which initially rose 4.4 percent to €8.20 in early trading, fell 0.63 percent later in the day to €7.84.

Marchionne conceded that a similar a merger of the auto companies "is technically possible," but said there were other things to do first, such as making a decision on exercising an option to buy outstanding Chrysler shares from a health care trust for retired autoworkers in the United States and Canada.

"Don't start building conspiracy theories about this," Marchionne said. "I would not go out of here thinking, once we complete this we are going to take a cookie cutter and replicate it for Fiat and Chrysler. There are significant differences."

Unions , worried that Fiat is losing interest in crisis-mired Italy, urged the government to ask for clarification about whether Fiat intends to shift resources, including the car business, out of Italy.

"The plan to leave the country has been going on for a while, while we continue to cling to Fiat," said Giorgio Airaudo of the FIOM union. "A marriage cannot be one-sided. The car business is of national interest, and for that reason we need transparency."

Marchionne argued in a four-page letter to the CNH board that a merger with Fiat Industrial would unlock value in both companies, while also creating a competitor to the major North American capital goods companies both in terms of market appeal and business scale.

Fiat Industrial is the third-largest global player in the capital goods market, behind Caterpillar and Volvo. But Marchionne said its "cumbersome" corporate structure has left it undervalued in the markets and it is trading at a significant discount compared with its peers.

Fiat Industrial's market capitalization is €9.6 billion, while CNH, which is traded on the New York Stock Exchange, is valued at €8 billion.

Fiat Industrial owns 88 percent of CNH, which is based in the Chicago suburb of Burr Ridge, Illinois. CNH said in a separate statement that it had no immediate position on the proposal.

"The proposed transaction is a natural extension of the process of simplification of the Fiat world," said Marchionne, following the spinoff from autos and the simplification of the shareholder structure to do away with preference shares last year.

He said the simplification would attract international investors, improve its credit rating, facilitate growth and make intra-group dealings easier.

Fiat Industrial wants to complete the transaction by the end of the year.

Marchionne said the new structure would allow the company to be better positioned in the capital markets and allow investors "to properly assess the combined value" of Fiat Industrial and CNH.

The new company would be registered in the Netherlands. Shareholders must approve the deal.

CNH Global N.V. sells farm and construction equipment under the Case and New Holland brands in 170 countries.

Beyond its farm and construction business, Fiat Industrial makes trucks, commercial vehicles and buses under the Iveco brand along with related engines and transmissions. It has been expanding its business into emerging markets through joint ventures.

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