Fiat's Death Agony Drags On

The death of Giovanni Agnelli on Friday, a day on which, in one of those strange coincidences of history, the future of his Fiat group was to have been 'finally resolved'', now propels his younger brother Umberto onto centre stage in the Fiat drama, with a dénouement to be expected within weeks. Umberto, who is 68, had assumed the family mantle in recent months while Fiat's honorary chairman battled cancer. Now it is he who must make far-reaching decisions for the Agnelli clan without any possibility of consulting the brother who had eclipsed him for so long. This strange, and macabre, twist in the Fiat crisis seems to be telling us something about the state of the world in Italy. For those who know how to look that is:

Fiat's board is expected to be convened within two weeks to review a recapitalisation and refinancing plan that could loosen the family's hold on the carmaking and industrial group.On February 28, Fiat's board could endorse a finalised plan, in addition to approving 2002 results that will include a €1.35bn ($1.46bn) operating loss for Fiat Auto and a slight drop in group revenues to €55bn. By then, however, Fiat might be a very different company if its creditor banks impose a new financial plan.The plan must accomplish several tasks deemed of national importance. For starters, it must stave off bankruptcy for Fiat Auto, the company's deeply troubled automobile division. The plan must also seek to avoid a sale of the division to General Motors, reversing Fiat's previous intentions to sell Fiat Auto to GM at the start of 2004 thanks to the exercise of a put option.

The plan, being worked out by Fiat's four largest creditor banks - Banca Intesa, Capitalia, Sanpaolo IMI and UniCredito Italiano - also must take into account government wishes that Fiat Auto should not fall into the hands of GM. Such a finale, the government fears, would be a national embarrassment and endanger the jobs of Fiat workers and of the hundreds of thousands of workers at Fiat's suppliers.In addition, the plan must take into account the ability of the Agnelli family itself to partake in a refinancing of the group. Currently, the plan involves the sale of several Fiat assets that would raise €3bn to be ploughed back into Fiat Auto. Another €2bn to €3bn would be raised on the markets. Fiat Auto could be spun off.In anticipation of such a plan, the Agnelli family's trust, Giovanni Agnelli & C, on Friday said family members agreed to a €250m capital increase, the first step the family must take if it is to remain a key shareholder of the company Umberto's grandfather founded in 1899. The trust also could raise cash from selling parts of Exor, an investment company it controls and which owns Chateau Margaux, the famed winery, and a significant stake in Club Mediterranée. Cash from the trust could then be used to partake in capital increases at IFI and Ifil, the two Agnelli- controlled holding companies that in turn own a combined 30 per cent of Fiat.Fiat's various subsidiaries in turn own another 4 per cent of Fiat group stock, giving the Agnellis effective control of 34 per cent of the company.
Source: Financial Times
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