CNH Global N.V. (CNH) shares are up 70% since the end of June in anticipation of buyout options for the farm and construction machinery company under the reorganization of Italian auto maker Fiat SpA (F.MI), analysts said Wednesday.
Fiat is the majority owner of CNH and plans to group the company with commercial truck and bus maker Iveco and Fiat's powertrain business in the newly created Fiat Industrial. The industrial company will be spun off to Fiat shareholders and begin trading on the Milan exchange early next year.
Meanwhile, Fiat's automobile assets, which include Fiat branded cars; spots cars Alfa Romeo, Ferrari and Maserati; and a stake in U.S. car-maker Chrysler Group, would remain under Fiat SpA.
Fiat shareholders last week approved the breakup, which the company describes as "demerger." Isolating CNH and Iveco from Fiat's car operations will effectively make it easier for Fiat to showcase the businesses to potential buyers, according to analysts.
"It would be a logical outcome," said Heiko Ihle, an analyst for Gabelli & Co., whose Gamco asset management unit is CNH's largest shareholder.
Fiat Industrial appears to be attracting interest from suitors, even before the spinoff is complete. Italian newspaper La Repubblica reported Wednesday that German automotive company Daimler AG (DAI.XE) recently offered Fiat $12 billion, or 9 billion euros, for Fiat Industrial. Fiat, however, rejected the offer as being too low, according to the newspaper. A Daimler spokesperson denied the report, while a Fiat spokesman said company doesn't comment on such reports.
Nevertheless, Fiat released a statement through the Italian Stock Exchange noting the spin-off of its industrial holdings will provide "a significant improvement in strategic flexibility" for the industrial businesses.
The business with the most flexibility is likely to be CNH, the world's second-largest farm machinery company behind Deere & Co. (DE). CNH, whose brands include Case, New Holland, Steyr and Kobelco, is based in suburban Chicago and already trades separately from Fiat, even though the automaker owns almost 90% of CNH's shares.
Analysts say Fiat Industrial could move to acquire the remaining shares of CNH to simplify the industrial company's ownership structure. Conversely, it could generate cash by selling some of its CNH shares or it could sell all of CNH, whose combined debt and stock value give the company an enterprise value of about $7.4 billion.
"We definitely believe that eventually (Fiat) will monetize CNH to some degree," said Lawrence DeMaria, an analyst for brokerage firm Sterne Agee & Leach. "Something is going to happen."
CNH ended Wednesday's regular trading session, up $1.5%, or 59 cents, at $38.66 a share. Most major manufacturers of farm or construction machinery closed lower Wednesday. CNH is flat in after-hours trading.
CNH's stock is up 70% since June 30, adding nearly $16 to the share price. The upward momentum is likely to continue into 2011 as the company rebounds from losses in 2009, especially in construction equipment, which is in early stages of an up-cycle.
CNH's second-quarter construction-equipment sales rose to $790 million from $547 million a year earlier. Operating profit from construction was $13 million, compared with a loss of $94 million a year earlier when CNH was saddled with high inventories of equipment because a severe slowdown in global construction activity.
CNH's second-quarter sales of farm machinery climbed 4.5% from a year ago to $3.14 billion. Operating income rose 23% to $644 million.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
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