General Motors To Pay Fiat $2B
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After two months of saber rattling, Fiat and General Motors reached a deal under which GM will not have to buy Fiat’s ailing car business but will pay the Italian automaker $2 billion in damages, the two announced in statements on their Web sites yesterday.
Though analysts expected GM would have to agree to a large payment to get out of its deal with Fiat, the amount comes in at the low end of analysts’ estimates, as the world’s no. 1 automaker was expected to have to pay up to $2.6 billion to cancel Fiat’s right to force the sale to go through.
GM plans to take an $840 million, or $1.49 a share, charge to cover the cost of the payment. GM will pay $1.29 billion immediately, and the rest in 90 days, Fiat said in a statement.
In March 2000, GM bought 20% of Fiat Auto in exchange for 6% of GM’s shares, which at the time had a market value of $1.6 billion.
Under the original deal, GM also agreed to a “put option” that would allow Fiat to sell its stake in Fiat Auto to GM.
Fiat claimed the put option was open to it beginning this month, and that the option would remain open until July 24, 2010.
GM claimed, however, that Fiat failed to hold up its end of the bargain when it sold its auto loan unit, Fidis, and recapitalized Fiat Auto.
GM has since written off the entire value of the deal, which has been reduced to 10% in the recapitalization.
Yesterday’s deal cancels the put option and returns GM’s 10% stake in Fiat Auto to Fiat, according to the companies.
The chairman of Fiat, Luca Cordero di Montezemolo, said in a statement, “While highly beneficial to both Fiat and GM since 2000, the arrangements had become too confining for the development of Fiat Auto in today’s market environment. We now have the necessary freedom to develop strategic growth alternatives for Fiat Auto, while retaining a base on which to build a much more constructive relationship with Fiat in the future.”
GM’s chief executive, Rick Wagoner, called the deal “a fair and equitable agreement…that gives each of us more freedom to act in today’s competitive environment.” The deal comes after a formal negotiating period ended in a standoff at midnight on February 1.
