Tags: CNH | Fiat | Industrial | Merger

CNH Rejects Fiat Industrial Merger Terms

Monday, 15 October 2012 04:44 PM

U.S. farm and construction equipment maker CNH rejected the terms of a proposed merger with Italy's Fiat Industrial, a setback for Chairman Sergio Marchionne's plans for a U.S. listing.

Fiat Industrial already controls 88 percent of CNH, but a special committee advising the U.S. company on the merger and whose approval is needed for it to happen said on Monday it had "unanimously concluded that the proposal is inadequate and would not be in the best interests of CNH and its shareholders."

The merger is important because it would create a single, U.S.-listed company that would benefit from lower financing costs and other synergies, enabling it to compete more effectively with global rivals such as Caterpillar.

"Fiat Industrial remains committed to the strategic and financial benefits of the merger," Marchionne said in a statement which signalled the company was prepared to discuss revised terms for the deal.

Fiat Industrial was spun off from Italian carmaker Fiat and the merger with CNH is seen by analysts as something of a blueprint for Fiat's planned buyout of the 41.5 percent stake in U.S. automaker Chrysler it does not already own.

The all-paper offer is based on market prices in March and April, before the plan was publicly disclosed, which works out to about 3.8-3.9 Fiat Industrial shares for each CNH share. Fiat Industrial, listed in Italy, has a market capitalization of 10.5 billion euros, or about $13.6 billion. U.S.-listed CNH's market value is $9.7 billion.

CNH stock has been trading at about half the valuation of rivals Caterpillar and John Deere, fuelling concern among investors in the U.S. company that they are being shortchanged. Fiat argues it should not pay a premium as the deal will not create cost savings.

A May 30 investor presentation by Fiat Industrial showed CNH's enterprise value at 3.2 times earnings before interest, tax, depreciation and amortization.

That compared with multiples of 6.3 for Deere, 6.1 for Caterpillar and 6.4 for Scania, the Swedish truckmaker controlled by Volkswagen.

CNH shareholders contacted by Reuters said they supported the logic of the merger but disliked the price being offered.

"It's a good plan, but CNH shareholders are not being adequately compensated for what we bring to the table in terms of our contribution to profits or synergies at the current offer price," said a CNH shareholder who asked not to be identified.



Fiat Industrial said it had asked its advisors to meet CNH's special committee to "explore whether the parties can reach agreement on revised terms for a merger transaction on a basis broadly consistent with that of the proposal."

Asked late on Monday when the advisors and the special committee would be meeting, Marchionne said he "understood that the meetings have started today."

"We need to sit down with them and understand the rationale behind their decision," Marchionne told reporters on Monday.

Sources familiar with the matter had told Reuters earlier in October that the plan faced delays after independent CNH directors raised doubts about the terms.

Shares in Fiat Industrial closed down 0.3 percent at 7.81 euros, underperforming the Milan stock index, which closed 0.5 percent higher. CNH shares closed 4.2 percent higher at $41.96 in New York.

Italian investment bank Mediobanca reckons that the combined group would save between 140 million and 150 million euros annually in financing charges.

"The news is negative as the deal ... is at risk," said Massimo Vecchio, an analyst at Mediobanca, keeping his rating on the stock at 'perform.'

"In the best case it will be significantly delayed and executed with worst terms," he said.

A second analyst said the merger was still a reasonable move, since it should reduce the Italian group's strong discount compared to competitors.

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U.S. farm and construction equipment maker CNH rejected the terms of a proposed merger with Italy's Fiat Industrial, a setback for Chairman Sergio Marchionne's plans for a U.S. listing.
Monday, 15 October 2012 04:44 PM
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