The Italian car giant Fiat has opened negotiations with the investment
bank Mediobanca to buy back its 29 per cent stake in Ferrari.
It is understood that Sergio Marchionne, the chief executive of the
Italian car maker, expects to achieve "a solid result" by
the end of next month.
"Fiat likes Ferrari," said a source close to the company.
"It's a good and valuable asset, as Fiat chairman Luca di Montezemolo
has said. Fiat wants to keep the asset - 2007 would be too early for
a flotation, for example."
Fiat has an option to acquire the Mediobanca holding in Ferrari for
around US$800m. It also owns a 2 per cent stake in Mediobanca, currently
worth around 200m. Analysts anticipate a share-swap, which would reduce
the amount of cash required for the repurchase.
Mr Montezemolo has repeatedly underlined the importance of Ferrari for
Fiat, on account of its research and development strength as well as
its brand image. Ferrari has enjoyed years as the leading team in Formula
One.
Fiat sold a 34 per cent stake in Ferrari to Mediobanca in 2002 with
a call option that expires at the end of June. Mediobanca has since
reduced its holding, selling a 5 per cent stake to Abu Dhabi's investment
arm, the Mubadala Development Company.
Currently, Fiat has 56 per cent of Ferrari, with the son of the founder,
Piero Ferrari, owning 10 per cent. The sale of the Ferrari stake to
Mediobanca was needed to refinance Fiat's ailing car business.
Between 2001 and 2004, Fiat accumulated losses of 8bn and was forced
to radically overhaul the business. Non-core businesses, including profitable
finance and insurance interests, have been sold, raising 10bn.
Mr Marchionne persuaded the company's bankers to convert 3bn of debt
into equity last year, as well as negotiating a 1.6bn payment from General
Motors to be released from the contractual obligation of investing in
Fiat.
Fiat has also significantly restructured its car business, cutting costs
and strengthening management. It has axed more than 12,000 jobs, mostly
from Fiat Auto.
Fiat reported profits of 1.2bn last year, with its car division returning
to the black in the final quarter. The new Grande Punto has proved a
success, with predicted sales this year of 360,000, enabling the Fiat
car division to forecast operating profits of 200m.
Profit margins, however, remain tight.
