CNH Global Directors Reject Fiat Takeover

Oct. 15, 2012
“Inadequate” offer, not in best interest of CNH, shareholders Combination would save financing costs Fiat Industrial remains committed to merger

CNH Global N.V. is rejecting a merger proposal from Fiat Industrial S.p.A., calling it “inadequate and (not) in the best interests of CNH and its shareholders.” The approach from Fiat was made in late May, and a special committee of CNH directors considered the offer and advised the board. The special committee was unanimous in its rejection, CNH announced.

The special committee stated it remains available to evaluate alternative proposals from Fiat Industrial.

CNH is an Illinois-based manufacturer of agricultural and construction equipment, notably the CNH, Case IH, Case and New Holland brands. Fiat Industrial, which was spun off from the automaker Fiat S.p.A. in 2010, produces Iveco trucks and Fiat Powertrain Technologies engines, transmissions, and powertrain products. It already controls nearly 90% of CNH, and its proposal would establish a new corporate entity originally estimated at a valuation of  $13 billion.

The original offer was an all-stock proposal based on market prices from late winter 2012, before the plan was announced publicly. Reports now indicate the bid would exchange 3.8 Fiat Industrial shares for each CNH share. The fact that there are few obvious savings in operating costs reportedly has limited Fiat’s willingness to bid up the merger.

The logic of the union is that, as a single company, Fiat and CNH would achieve lower corporate financing costs and establish a more attractive shareholding position with a single stock offer. However, there is not necessarily any savings projected in product development or marketing, and thus operating cost-savings are less tangible.

In a response to CNH, Fiat Industrial reiterated its commitment to the transaction, and to completing it “promptly.”

“Fiat Industrial remains committed to the strategic and financial benefits of the merger,” chairman Sergio Marchionne stated, “which would simplify the group’s capital structure by creating a single class of liquid stock listed in New York and build a true peer in scale and in capital market position to the major North American-based global capital goods companies, enhancing the Group’s appeal to international investors, improving the credit profile of both companies and providing an attractive platform for future growth opportunities.”

Fiat asked its advisors to meet with the CNH shareholders’ committee to determine “the basis for this decision and explore whether the parties can reach agreement on revised terms.” It also restated the original logic of the merger: “the need to maintain appropriate credit ratings for the Group, attract a wider range of international investors, and provide an appropriate platform from which to pursue future growth opportunities.”

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