Fiat parent earns €1.5bn from SGS stake sale

Reuters/Milan/Brussels

Car maker Fiat’s parent company pocketed a net €1.5bn ($2bn) from a disposal yesterday, in a move analysts said could help lay the ground for Fiat’s looming purchase of the rest of Chrysler.

Exor, a holding company run by a scion of Fiat’s founding Agnelli family, said it sold its 15% stake in Swiss inspection company SGS to Belgian conglomerate Groupe Bruxelles Lambert (GBL).

The sale is part of plans by Exor Chief Investment Officer Shahriar Tadjbakhsh to boost the value of Exor’s €8.3bn investment portfolio, by concentrating on large stakes in companies such as Fiat with a global reach.

Exor, which also controls truck maker Fiat Industrial, had been an investor in SGS for 13 years. It said it had sold its stake for a total of €2bn ($2.6bn), having bought it for some 500mn.

Investors saw the move as connected to Fiat’s plan to buy up the 41.5% of US car maker Chrysler that it does not already own, an acquisition likely to cost around $4bn but whose final bill has not yet been determined.

The deal would likely be accompanied by a share issue by the maker of cars ranging from 500 hatchbacks to Ferrari supercars.

Exor has said it would want to take part in any share issue to preserve its 30% Fiat holding and not let it be diluted.

“This transaction could seem like Exor wants to raise cash ahead of an investment in Fiat-Chrysler in the event that Fiat needs to bolster its equity, as it brings its stake in Chrysler to 100%,” said Luca Arena, an analyst at ICBPI brokerage in Milan, in a note.

Exor and Fiat Chairman John Elkann, a descendent of Fiat co-founder Giovanni Agnelli, last week signalled his determination that Exor’s stake in Fiat would not be watered down in the Chrysler merger, which Fiat Chief Executive Sergio Marchionne has said may be partly funded by a share issue.

Elkann, a member of the family which has owned the Italian car maker since 1899, was quoted as saying Exor would use between €1.2bn and €1.3bn already on its balance sheet to keep its grip on the future merged carmaker.

Despite the prospects for a capital increase, Fiat shares held on to last week’s gains and were trading at €6.12 early yesterday, near their highest level since August 2011.

When companies announce a capital increase, their shares usually fall as investors anticipate the cost of taking part or the risk of being diluted, but some analysts say Fiat’s recent resilience shows support for the Chrysler deal.

“The market is showing it’s ready for this capital increase, because Fiat is buying up a strategic asset,” said one analyst in London.

For GBL, run by Belgium’s richest man Albert Frere, the move is part of a diversification strategy. The company in January raised cash for investments to expand its portfolio by selling exchangeable bonds worth almost €1bn, representing almost half its stake in French energy GDF Suez.

GBL, which also holds 21% of cement company Lafarge and 4% of oil major Total, will become the second-largest shareholder in SGS after the von Finck family.

SGS, a specialist in inspection, verification and testing services for industries as diverse as agriculture and life sciences, could not immediately be reached for comment.

Shares in GBL were down 1.3% at €60.28 by 0907 GMT, while Exor shares were up 2.6% at €25.26.

Holding companies typically trade at a discount to the assets in their portfolio. Exor’s market value was €6bn as of Friday’s close, so is trading at about a 30% discount to its portfolio value.

“The stock is up because when Exor sells an asset like SGS for cash, the discount on its SGS stake disappears and that boosts the stock price,” said UBS analyst Philipe Houchois.