Fiat's Alliance Deal With GM Unveiled

Fiat, the Turin-based and world No.6 auto multinational, Monday unveiled a radical change of direction with a share swap deal and joint European investment agreement with the world's biggest carmaker, General Motors.

The deal, which gives GM 20 percent of Fiat and Fiat 5.1 percent of GM at the same price of some 2.4 billion U.S. dollars, represent a deep change in the traditional structure of Italian industry.

As the terms of the accord started to filter out, it emerged that Fiat's purchase of 5.1 percent of GM will cost 2.522 billion U.S.dollars.

Fiat Chairman Paolo Fresco called the deal "historic," and said that "We want to grow and we will do so in control of own destiny, "answering fears of foreign "colonization" expressed in some quarters.

But the deal envisages the possibility of transferring control of Fiat's car division to GM within five years.

Fresco described this as a "theoretical guarantee," adding that "Fiat and GM have structured the accord with a put option that consists of a sort of parachute for shareholders."

Fresco said a joint-venture structure would be ready within three months, one of these would jointly develop engines and transmission systems, containing all GM's European and Brazilian activities in these sectors.

The deal will enable GM to get footholds in key emerging markets while the two groups will collaborate on parts and development and Fiat will be able to use GM's business-to-business e-sales network.

But while creating joint ventures to produce parts and engineering for their cars, the two companies will maintain their

independence in assembly, trade-mark management and commercial

strategy.

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