Fiat Industrial SpA (FI), the truck and tractor manufacturer that carmaker Fiat SpA (F) spun off in 2011, plans to merge with its CNH Global NV (CNH) (CNH) unit and move its primary listing to New York to lure more investors worldwide.
Fiat Industrial, which controls the tractor maker through an 88% stake, proposed to CNH’s board the creation of a new company in a share exchange that wouldn’t include a premium for either companies’ investors, the Turin, Italy-based company said in a statement today.
The transaction would create the world’s third-largest capital goods company, according to Fiat Industrial, with a product range that includes Iveco delivery trucks, New Holland harvesters and FPT ship engines. Fiat Industrial Chairman Sergio Marchionne targets 25 billion euros ($31.1 billion) in sales this year, including Amsterdam-based CNH.
“The deal makes sense as it simplifies the structure of the company,” said Emanuele Vizzini, chief investment officer of Investitori Sgr in Milan. “It’s is also a sign of Marchionne’s center of gravity moving to the U.S.”
Marchionne has been looking for a way to buy out minority CNH shareholders, who currently own a stake worth $1.15 billion. He said last month that Fiat Industrial was working on a solution after the parent company simplified its capital structure by converting its saving and preferred shares into common stock.
New York Listing
Marchionne said in a letter to employees today that while Fiat Industrial’s name may change as part of the transaction, the “operational structure will not.”
The new structure would create a single class of stock listed in New York with a secondary listing in Europe, the Italian manufacturer said. CNH is listed in New York, while Fiat Industrial shares are traded in Milan.
Fiat Industrial will be delisted from the Milan exchange on completion of the deal, according to two people familiar with the matter. A decision hasn’t yet been made on where to list in Europe, and the Milan exchange remains one of the possibilities, said the people, who declined to be identified discussing the private plan.
“With the crisis in Europe and an Italian exchange not very liquid, it’s obvious that a global player with a strong presence in the U.S. would seek a New York listing,” said Giuliano Noci, associate dean at MIP Politecnico in Milan. “Fiat Industrial may presage a similar move of Fiat and Chrysler.”
Fiat, which owns 58.5% of U.S. auto manufacturer Chrysler Group LLC, aims to merge the two carmakers to boost revenue to more than 100 billion euros in 2014. Marchionne hasn’t disclosed yet where the combined entity will be listed and based.
Fiat Industrial rose as much as 5.7% to 8.34 euros and traded 1.9% higher as of 12:41 p.m. in Milan, the best performer today in the Bloomberg Europe Autos Index. (BEAUTOS)
“The proposed move will have one key effect, reduction in borrowing costs for the combined entity given a U.S. listing versus the present Italian one for Fiat Industrial,” said David Arnold, a sales specialist at Credit Suisse in London.
Exchange ratios for the new company, which will probably be headquartered in the Netherlands, will be based on “undisturbed” share prices from March and April, according to the statement. CNH and Fiat Industrial shareholders won’t receive a premium because cost savings will probably be “minimal,” the Italian company said.
The closing will be subject to a 250 million-euro cap on Fiat Industrial shareholders’ withdrawal rights, the company said. The proposal includes incentives for investors to hold on to the stock “to facilitate a stable shareholder base,” the company said. The incentives include doubling the voting rights for investors that keep the shares at least three years.
CNH’s board hasn’t yet fully evaluated the proposal, the tractor manufacturer said in a separate statement.
Exor SpA (EXO), the holding company that’s Fiat Industrial’s biggest shareholder, said separately that it supports the planned combination and wants to be a long-term investor in the new entity.
Exor will still control the resulting company, Mediobanca analysts wrote in a note to clients today.
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