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Fiat may make Chrysler revival a priority

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Fiat may make Chrysler revival a priority

It sends mixed signals about Italian division's spin-off

BY SARA GAY FORDEN

BLOOMBERG NEWS

Fiat, the Italian carmaker that helped Chrysler emerge from bankruptcy, may wait to turn around the U.S. business before deciding on a share sale or spin-off for its automotive division.

The Italian company's stock has risen 21% this month on speculation that CEO Sergio Marchionne may carve out Fiat's biggest unit as a new company. Fiat executives have so far sent mixed signals about whether an initial public offering of the division will take place.

A separation of the auto manufacturing operations, which generated 56% of Fiat's revenue last year, would give Marchionne an entity to facilitate future alliances, and a share sale would generate cash for international expansion.

The maker of Puntos and Ferraris must show progress at Chrysler, of which it owns 20%, before convincing investors to buy shares in the unit, said Royal Bank of Scotland analyst Jose Asumendi.

"Fiat has too much on its hands right now to think about a possible spin-off," said London-based Asumendi, who advises holding Fiat's stock. "The priority is to resurrect Chrysler, make it profitable and repay its government loans."

Fiat Automobile, not including Fiat's 20% stake in Chrysler, is worth about 5.9 billion euros ($8 billion), or 53% of Fiat's market value, said Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. "Get the U.S. strategy right and in six years' time, Fiat Auto could be worth 20% more."

Fiat derives the remainder of its revenue from units including truckmaker Iveco and CNH Global, an agricultural and construction machinery maker.

Marchionne plans to detail on April 21 in Turin, Italy, how Chrysler, which he also runs, will improve Fiat's profitability through shared sales efforts and technology. The CEO is trying to shore up both companies as government incentives to buy new cars end in Europe and Chrysler's U.S. market share lags a 10.5% target for 2010.

Chrysler is "in a year of hibernation" and talk of a separate Fiat Auto is "premature," Kristina Church, an analyst at Barclays Capital, wrote in a note Monday. Barclays upgraded Fiat to "equal weight" from "underweight" in part because the shares may benefit from the speculation.

Fiat's surge this month is more than triple that of the Bloomberg World Auto Manufacturers Index, which includes Fiat and has risen 5.7%. Ford, the only major U.S. carmaker that didn't take a government bailout, has jumped more than sixfold in 12 months and is up 28% this year, compared with a 9% decline by Fiat.

That recent share gain might persuade executives to press ahead with a share sale sooner rather than later, said Pierre Bergeron, a credit analyst at Societe Generale in Paris. The company's perceived value is unlikely to rise soon because Fiat and Chrysler offer a weak product lineup in a challenging U.S. market, he said.

A partial sale or spin-off this year, of a 30% stake, could give Fiat additional options for consolidating its debt, Bergeron said. Fiat could also sell more after that, he said.

A spin-off "is not dead," Marchionne told reporters March 3 in Geneva. A day earlier, Chairman Luca Cordero di Montezemolo told Bloomberg News that he didn't foresee a share sale.

Fiat will be held back this year by declining car sales, pricing pressure and industry overcapacity, Barclays' Church wrote.

Fiat makes about 2 million cars annually, while Chrysler manufactured 1.3 million last year. That's short of Marchionne's contention that to survive as a global automaker, a company needs production of at least 5 million vehicles.

Last year, the carve-out speculation centered on Fiat's bid for General Motors' Opel because a purchase could have given Fiat the scale Marchionne said is necessary to survive. GM eventually decided to keep the European operations.

link:

http://www.freep.com/apps/pbcs.dll/article?AID=/20100314/BUSINESS01/3140469/1331/Business01/Fiat-may-make-Chrysler-revival-a-priority&template=fullarticle

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Fiat may make Chrysler revival a priority

It sends mixed signals about Italian division's spin-off

BY SARA GAY FORDEN

BLOOMBERG NEWS

Fiat, the Italian carmaker that helped Chrysler emerge from bankruptcy, may wait to turn around the U.S. business before deciding on a share sale or spin-off for its automotive division.

The Italian company's stock has risen 21% this month on speculation that CEO Sergio Marchionne may carve out Fiat's biggest unit as a new company. Fiat executives have so far sent mixed signals about whether an initial public offering of the division will take place.

A separation of the auto manufacturing operations, which generated 56% of Fiat's revenue last year, would give Marchionne an entity to facilitate future alliances, and a share sale would generate cash for international expansion.

The maker of Puntos and Ferraris must show progress at Chrysler, of which it owns 20%, before convincing investors to buy shares in the unit, said Royal Bank of Scotland analyst Jose Asumendi.

"Fiat has too much on its hands right now to think about a possible spin-off," said London-based Asumendi, who advises holding Fiat's stock. "The priority is to resurrect Chrysler, make it profitable and repay its government loans."

Fiat Automobile, not including Fiat's 20% stake in Chrysler, is worth about 5.9 billion euros ($8 billion), or 53% of Fiat's market value, said Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. "Get the U.S. strategy right and in six years' time, Fiat Auto could be worth 20% more."

Fiat derives the remainder of its revenue from units including truckmaker Iveco and CNH Global, an agricultural and construction machinery maker.

Marchionne plans to detail on April 21 in Turin, Italy, how Chrysler, which he also runs, will improve Fiat's profitability through shared sales efforts and technology. The CEO is trying to shore up both companies as government incentives to buy new cars end in Europe and Chrysler's U.S. market share lags a 10.5% target for 2010.

Chrysler is "in a year of hibernation" and talk of a separate Fiat Auto is "premature," Kristina Church, an analyst at Barclays Capital, wrote in a note Monday. Barclays upgraded Fiat to "equal weight" from "underweight" in part because the shares may benefit from the speculation.

Fiat's surge this month is more than triple that of the Bloomberg World Auto Manufacturers Index, which includes Fiat and has risen 5.7%. Ford, the only major U.S. carmaker that didn't take a government bailout, has jumped more than sixfold in 12 months and is up 28% this year, compared with a 9% decline by Fiat.

That recent share gain might persuade executives to press ahead with a share sale sooner rather than later, said Pierre Bergeron, a credit analyst at Societe Generale in Paris. The company's perceived value is unlikely to rise soon because Fiat and Chrysler offer a weak product lineup in a challenging U.S. market, he said.

A partial sale or spin-off this year, of a 30% stake, could give Fiat additional options for consolidating its debt, Bergeron said. Fiat could also sell more after that, he said.

A spin-off "is not dead," Marchionne told reporters March 3 in Geneva. A day earlier, Chairman Luca Cordero di Montezemolo told Bloomberg News that he didn't foresee a share sale.

Fiat will be held back this year by declining car sales, pricing pressure and industry overcapacity, Barclays' Church wrote.

Fiat makes about 2 million cars annually, while Chrysler manufactured 1.3 million last year. That's short of Marchionne's contention that to survive as a global automaker, a company needs production of at least 5 million vehicles.

Last year, the carve-out speculation centered on Fiat's bid for General Motors' Opel because a purchase could have given Fiat the scale Marchionne said is necessary to survive. GM eventually decided to keep the European operations.

link:

http://www.freep.com/apps/pbcs.dll/article?AID=/20100314/BUSINESS01/3140469/1331/Business01/Fiat-may-make-Chrysler-revival-a-priority&template=fullarticle

If they don't want to loose the money they invested they'll need to.

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