Fiat and GM’s long-standing dispute over whether the Italian manufacturer can force GM to buy its car unit reached another impasse on Tuesday as the mediation period failed to influence the situation.
Fiat and GM’s long-standing dispute over whether the Italian manufacturer can force GM to buy its car unit reached another impasse on Tuesday as the mediation period failed to influence the situation.
The standoff raises the threat of a legal battle in what several analysts have termed a “lose-lose” situation. The mediation period to settle the dispute expired at midnight on Tuesday. In its argument, GM insisted that Fiat had invalidated the put option when it moved Fiat Auto into a recapitalisation programme (which halved GM’s stake to 10 per cent), and sold its finance arm.
Fiat disagrees, and chief executive Sergio Marchionne has threatened to exercise the put to coerce GM into a deal.
According to Reuters, many analysts have said that Marchionne’s future has been compromised by his failure to enforce the put on Wednesday. The chief executive has staked his reputation of solving the GM problem, and hopes that some cash for the put and a relaxing of the GM/Fiat alliance could help Fiat Auto to pursue new deals, and maybe move towards recording profits.
Some analysts, too, have said that there was still a good chance GM would strike a deal to cancel the put, allowing it to concentrate on solving its own European losses. Others predict the matter may only be settled in court.
But any exercise of the put option could possibly be met with resistance, not only from GM, but also from the Italian government and unions. Italian labour minister Robert Maroni on Wednesday said the government would no longer give Fiat any cash, before adding that leaving Fiat’s future to lawyers would be disastrous.
“We are following the situation with concern, as it creates uncertainty in the market and in labour relations,” Maroni said.
Fiat is Italy’s biggest private employer, but has many of its 28 000 Auto division employees working on a temporary basis to cut output in line with demand.
The put option was agreed upon in March 2000 when GM agreed to purchase a 20 per cent stake in Fiat Auto. As part of the 2,5 billion-dollar agreement, the parties agreed that Fiat could sell the remainder of the company to GM by 2010. In the interim, the two companies would share purchasing and engine development to cut their costs.
But after the deal was struck, Fiat Auto’s condition deteriorated, and its recent appeal to GM to enforce the put option was brushed off.
