Fiat to Avoid Legal Battle

Fiat SpA said Wednesday no agreement had been reached with General Motors Corp. at the end of a mediation period and insisted it could force GM to buy its ailing auto unit.

The mediation period ran from Dec. 16 to Feb. 1 and gave the companies a chance to reach a settlement over Fiat’s so-called put option.

The Turin-based automaker said in a statement shortly before the Italian stock market was to open for the day in Milan that the put option remained valid and “could be exercised in the terms agreed, and is an important asset for the company.”

Fiat said the put option, part of a 2000 agreement that says the Italian company has the right to sell its car business to GM, could be exercised from Wednesday until July 24, 2010. He mediation process that General Motors began on Dec. 16′’ is over and “no agreement has been reached,'’ Fiat said in a faxed statement. The Turin, Italy-based automaker reiterated it considers the option valid for exercising from today through July 24, 2010.

General Motors bought 20 percent of Fiat Auto in 2000 as part of a plan to cooperate on the development and production of engines and autos. GM Europe and Fiat Auto have recorded losses of billions of euros and cut jobs over the last three years because of competition from French and Japanese carmakers.

The two companies disagreed over the validity of the so- called put option. A capital increase by Fiat in 2003 reduced General Motors’ stake to 10 percent. That move, coupled with an asset sale, voided the Italian company’s option to sell the automotive unit, Detroit-based General Motors said.

The companies are jointly developing vehicles by sharing car structures and parts. Fiat’s new Punto, scheduled to be released in the second half of this year, shares parts with Opel’s Corsa subcompact model to come out in 2006. Fiat Auto had an operating loss of 270 million euros ($353 million) in the third quarter, the 12th straight quarterly loss.

Fiat had net debt of 16 billion euros at the end of September, up 530 million euros from the end of June, and a negative net financial position, or net debt less financial receivables, of 5.53 billion euros. This year, 1.95 billion euros of bonds fall due, according to Bloomberg data.

GM argues that it is no longer under obligation to buy Fiat Auto after restructuring moves changed the look of the carmaker and diluted the U.S. company’s stake to 10 percent from 20 percent. Analysts say GM would have a tough time proving that in court and would instead pay Fiat to annul the option. general Motors Corp, which may be forced to buy the 90 per cent of Fiat Auto it does not already own, will settle with Fiat SpA to avoid a legal fight that would hurt both auto companies, investors such as National City Corp’s Dan Poole said.

Fiat said it would wait until at least today before deciding whether to exercise a “put” option that may eventually force GM, the world’s largest automaker, to buy Fiat Auto. GM Chief Executive Officer Rick Wagoner and Fiat CEO Sergio Marchionne said on January 24 they would try and reach an agreement on the dispute by yesterday.

General Motors is trying to avoid costs that might prompt rating companies to reclassify its US$291 billion in debt as non-investment grade. GM says Fiat violated terms of their 2000 investment agreement when it sold a finance unit and accepted new investment in 2003. Fiat is seeking cash to develop new models and return the auto unit to profit.