A one-year delay in Fiat’s option to sell its struggling car unit to General Motors will give it time to boost Fiat Auto’s value but does not change the group’s outlook, analysts told Reuters on Monday.
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Reuters noted that, late on Sunday, Fiat and GM said the “put” option would now start in January 2005 and in the meantime they would try to settle a wrangle over whether the put was still valid after Fiat recapitalised Fiat Auto and sold its customer credit arm.
“I never assumed the put would be exercised so nothing has changed,” Gaetan Toulemonde, an analyst at Deutsche Bank, told the news agency.
“(Fiat and GM) have a year to resolve their differences but it’s in both their interests to do so and protect their joint ventures so this doesn’t change anything,” Cyril Benayoun, an auto credit analyst at BNP Paribas, told Reuters.
According to Reuters, GM argues that a recapitalisation of Fiat Auto, which diluted its stake to 10%, and the sale of financing unit Fidis broke the terms of the 2000 deal and rendered the put void.
While that would have been a disaster last year when analysts said Fiat’s only hope was to sell its 104-year-old carmaker, Reuters said, the group has since sold its most profitable assets and raised fresh cash to fund a car-based future.
According to Reuters, chief executive Giuseppe Morchio says Fiat Auto should hit operating breakeven in 2005 at which point, analysts told the news agency, Fiat would be able to get a much better price than it would today.
According to Reuters, they also said that shifting the whole five-and-a-half year exercise period back a year would give Fiat more time to sell in 2009-2010 when the whole landscape could have changed.
“We knew Fiat wasn’t keen to sell at a depressed price so they had to wait a few more quarters anyway. They are focused on the turnaround and have the financing to do it,” BNP Paribas’ Benayoun told Reuters, adding: “The worst risk to Fiat and its ratings would be if the put was cancelled.”
