Investors reacted positively on Monday to the news that General Motors (GM) will pay Fiat â,¬1,55-billion ($2-billion) to divorce its loss-making Italian partner.
Shares in Fiat were up more than 4% during morning trading in Milan on the back of what was being described as a victorious outcome for the Italian carmaker.
Announced on Sunday at an extraordinary meeting of Fiat’s administrative board in Turin, the deal involves Fiat agreeing to cancel an option to sell its unprofitable car-making division to GM.
In return, the American company will pay Fiat â,¬1,55-billion — with â,¬1-billion being paid on Monday and the rest of the sum within the next 90 days — and give back the 10% stake in Fiat it acquired in 2000.
All joint ventures between the two companies are to be dissolved. However, GM is to continue to be given access to Fiat’s efficient multi-jet diesel engines and will obtain a 50% stake in the Polish factory where the engines are made.
Fiat said the deal, signed by Fiat CEO Sergio Marchionne and GM’s Rick Wagoner, is good news for the company.
”We have won the battle with our American partners. We can now use our regained freedom to play our part,” Fiat chairperson Luca Cordero di Montezemolo told La Repubblica.
On top of replenishing its empty coffers — Fiat posted a net loss of â,¬2,1-billion in 2003 and was expected to lose between â,¬1,5-billion and â,¬1,7-billion euros in 2004 — the deal also allows the 106-year-old company avoid a lengthy and potentially damaging legal battle with GM.
It also gives Fiat the freedom to look for a new partner, either in Europe or in Asia.
Possible new deals being suggested in the Italian media include the strengthening of ties with its long-time French partner Peugeot, or forging new alliances with Japan’s Toyota or China’s Shangai Automotive.
The end of the standoff between GM and Italy’s largest private manufacture was also welcomed by Italian politicians.
In a statement, Prime Minister Silvio Berlusconi spoke of the ”new prospects” facing Fiat.
But trade unionists warned that the deal will not solve all of the problems facing a company that has shed half of its share of the Italian car market over the past 30 years and which has been losing money almost uninterruptedly since 1997. — Sapa-DPA