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CORRECTED-UPDATE 2-Fiat Industrial boosts U.S. focus with CNH merger
May 30, 2012 / 5:57 AM / 5 years ago

CORRECTED-UPDATE 2-Fiat Industrial boosts U.S. focus with CNH merger

* New group will have primary listing in New York

* Deal shifts focus to North America to attract new investors

* Fiat, CNH investors to get shares in new company

* Fiat Industrial shares up 3.8 percent, outpace sector

By Danilo Masoni and Stefano Rebaudo

MILAN, May 30 (Reuters) - Italian truckmaker Fiat Industrial plans to merge with its U.S. farm equipment unit CNH , building a global heavyweight industrial machinery group and shifting its focus towards North America.

The plan to create a $13 billion U.S.-listed group adds to a streamlining of the Agnelli family’s holdings, which started in 2010 with the spin-off of Fiat Industrial from Turin-based carmaker Fiat.

The new group will be listed on the New York Stock Exchange, where CNH already trades, and have a secondary listing in Europe, Fiat Industrial said on Wednesday.

The new structure and bigger scale are also expected to allow the company to dominate in any future M&A deal.

“The proposed transaction is a natural extension of the process of simplification of the Fiat world,” Fiat Industrial chairman Sergio Marchionne said. “This clarity will also make it easier to get financing at favourable costs and give the necessary flexibility for future strategic deals.”

Marchionne is best-known for having masterminded Fiat’s rescue of Detroit-based carmaker Chrysler, which gave the Italian company a large presence in the United States.

Fiat Industrial, which owns 88 percent of CNH, would be redomiciled from Italy to the Netherlands, the group said, raising the chances that the Milan Bourse will not be chosen as the main European trading centre for the new company.

Italian leftist union leader Giorgio Airaudo told Reuters the deal pointed to the diminishing importance of Italy in the group’s global strategy.

“It is obvious that the option is there that a similar move could involve Fiat and Chrysler,” Airaudo said.

A source familiar with the deal told Reuters that the location of the European listing had yet to be decided as well as the name of the combined entity. The source said a Dutch base offered a flexible and predictable jurisdiction for corporates.

Investors in both companies will be given shares in the new Dutch-based group at a swap ratio based on market prices in March and April, before the matter was first raised publicly.

Shareholders would not get any premium from the transaction since expected cost savings would be minimal, it said.

“This deal looks particularly positive for Fiat Industrial holders since it will be a nil premia merger. They are not offering CNH holders any uplift,” analysts at Bernstein said.

The source said the structure of the deal as a cross-border merger meant that there would not be any tender offer for CNH minorities.

Fiat Industrial shares were up 3.8 percent at 8.19 euros by 0827 GMT, the best-performing blue-chip on Milan’s index, after hitting their highest since May 4. The European industrial goods index was down 0.8 percent.

“We judge the deal very positively as in our view the new company would save on financial charges between 60 million and 120 million euros, would benefit from a re-rating towards U.S.-style multiples and probably could also have a lower tax rate,” Mediobanca said in a note.

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