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Fiat Split in Two Headed for Volatile Milan Trading

Fiat Split
New Holland Fiat India Pvt. Ltd. employees work on a tractor on the assembly line at the company's production plant in Greater Noida, India. Photographer: Pankaj Nangia/Bloomberg

Traders of Fiat SpA shares are bracing for a “crazy” day on Monday, when investors assign their first value to the two stocks formed from the biggest reorganization in the carmaker’s 111-year history.

Fiat Industrial SpA, the new company whose main assets are truck and tractor makers Iveco and CNH Global NV, may reach 9.40 euros on the Milan exchange Jan. 3, according to the average estimate of analysts compiled by Bloomberg. Fiat may trade at 6.65 euros, the estimates show, implying the two stocks combined would be 7.1 percent more than the old Fiat’s close yesterday.

Both Fiat and Fiat Industrial will be prone to swings on the first day because the carmaker hasn’t given an indication of the stocks’ valuation and Fiat’s profit forecasts don’t take into account a stake in Chrysler Group LLC. The Italian company, with a market value of 18.4 billion euros ($24 billion) as of yesterday and whose first car was the 4 HP developed in 1899, had gained 44 percent since announcing the spinoff on April 21.

“I don’t remember an operation of this type in Milan, especially for a big cap like Fiat,” said Alessandro Capuano, the head of the Italian trading desk for IG Markets in Milan, who has been tracking equities the past six years. “It’s not a classical IPO. It could be a highly volatile trading day.”

Investors are getting one share of Fiat Industrial for every Fiat share they hold. The Milan exchange doesn’t plan to take orders in the pre-opening auction phase Jan. 3, said Nunzio Visciano, head of listings at Borsa Italiana.

‘Crazy Day’

The exchange conducted a simulation with traders Dec. 16 to facilitate the debut, which will coincide with the first day of trading on the bourse in 2011.

“It’s going to be a crazy day with shares dancing up and down and several suspensions,” said Alessandro Frigerio, a fund manager at RMJ Sgr in Milan, who sold Fiat stock earlier this year. “We’ll wait a few days before deciding if we would buy.”

Turin-based Fiat reached an almost three-year high of 15.80 euros on Dec. 27. Before today, the stock had climbed 44 percent since April 21, the second-best performance on Italy’s benchmark Index, which lost 12 percent in the period. Exor SpA, which owns 30 percent of the carmaker, gained 76 percent. CNH, which trades in New York, added 49 percent.

Fiat gained 23 cents, or 1.5 percent, to 15.22 euros at 3:53 p.m. in Milan. Exor lost 36 cent, or 1.5 percent, to 24.20 euros. CNH slipped 0.3 percent to $47.77 in New York.

Maserati, Ferrari

Fiat Chief Executive Officer Sergio Marchionne, who oversaw the acquisition of a 20 percent stake in Chrysler in June last year, pushed through the separation so he can focus on carmaking and foster more auto alliances. Fiat’s remaining assets after the spinoff include the Maserati and Ferrari luxury brands.

To concentrate on running Fiat and Chrysler as both carmakers’ CEO, Marchionne, 58, gave Iveco’s top job to Alfredo Altavilla, 47, who will jointly run Fiat Industrial with Harold Boyanovsky, the 66-year-old CEO of CNH. Altavilla is a top candidate to run Fiat Industrial, Marco Santino, a consultant at A.T. Kearney in Rome, said in October.

Of 32 analysts tracked by Bloomberg who have given recommendations on Fiat in the past six months, 19 advise buying, nine say hold and four recommend selling.

“Fiat Industrial will immediately attract attention due to a greater visibility,” Martino De Ambroggi, an Equita Sim analyst ranked by Bloomberg as the top Fiat analyst, wrote in a Dec. 22 note to clients.

A Fiat spokesman declined to comment on the stocks’ valuation before they begin trading.

Cash Vs. Debt

In 12 months, Fiat Industrial may trade at 8.92 euros, according to the average estimate of 13 analysts. Fiat may reach 7.99 euros, the estimates show. That would imply an upside of 13 percent from yesterday’s closing price. The day-one price projections were based on estimates of four analysts.

“The two Fiat stocks will be more valuable than the current one from the first day,” said Wolfram Mrowetz, chairman of Alisei SIM in Milan who oversees 230 million euros including Fiat shares. “Fiat Industrial will get a higher value at the beginning because it has a bigger cash flow. The auto unit has a great potential in the medium term thanks to the Chrysler venture.”

Fiat will divide its net industrial debt so that Fiat Industrial will assume as much as 2.4 billion euros, and Fiat up to 2 billion euros. Fiat Industrial last week arranged a 4.2 billion-euro financing package with banks including Barclays Plc, Citigroup Inc., Intesa Sanpaolo SpA and UniCredit SpA.

Profit Forecast

Fiat Industrial will probably increase trading profit, measured by earnings before interest, taxes and one-time gains or costs, by 133 percent to as much as 1.4 billion euros in 2011, while Fiat auto may double its trading profit to as much as 1.2 billion euros, according to Fiat’s April business plan.

The forecasts don’t include contributions from Auburn Hills, Michigan-based Chrysler and haven’t been updated since Marchionne raised the 2010 trading profit target for the group to 2 billion euros from 1.2 billion euros in October. Fiat is scheduled to report fourth-quarter earnings Jan. 27.

“Fiat auto has a higher potential than the Industrial unit, which is a much more stable business,” said Gianmaria Bergantino, a fund manager at Bank Insinger de Beaufort in Rome. “I may buy the auto stock because it is more speculative.”

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