Fiat Owner Exor Sells SGS Stake to GBL for $2.6 Billion

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Exor Chairman John Elkann
Exor Chairman John Elkann said, “We have been privileged to have been able to support SGS throughout these past 13 years. We are confident the company will continue to develop.” Photographer: Alessia Pierdomenico/Bloomberg

Exor SpA, the Agnelli family holding company which controls Fiat SpA, sold a stake in SGS SA for 2 billion euros ($2.6 billion), freeing up resources ahead of the Italian automaker’s planned combination with Chrysler Group LLC.

Exor, which will post a capital gain of 1.53 billion euros from the sale of its 15 percent holding in the Swiss product-inspection provider to Groupe Bruxelles Lambert SA, will use the money to pursue “new investment opportunities,” the company said in a statement today.

Chairman John Elkann said last week that Exor has enough funds to invest in Fiat and Chrysler when they combine. One option being explored is to create a company in the U.S., merge Fiat and Chrysler into it and issue shares in the new entity, a person familiar with the matter said last week.

“We clearly see a connection between the sale of the SGS stake and the hypothesized capital increase of Fiat-Chrysler,” Gabriele Gambarova, an analyst at Banca Akros in Milan wrote in a note to clients today. The sale “suggests the Fiat-Chrysler capital increase might be much bigger than the 3 billion euros to 4 billion euros previously estimated.”

Exor gained 33 cents, or 1.3 percent, to 24.94 euros in Milan. SGS rose 1.1 percent in Zurich, giving the company a market value of 17.1 billion Swiss francs ($18 billion). GBL declined 1.1 percent in Brussels. Fiat climbed 3.3 percent.

Elkann said last week that Exor has “firepower” of about 1.6 billion euros for new investments, including cash and additional borrowing capacity.

Investment Resources

“It’s very premature to say how the Fiat-Chrysler transaction will happen and what it would will entail in terms of requirements,” Elkann said on a conference call with analysts May 30. “What is sure is that we do think that if the right opportunity comes, we want to have the resources to be able to invest in it.”

Fiat is in talks for as much as $10 billion in financing from a pool of banks to buy the Chrysler stake it doesn’t already own and refinance the two automakers’ debt, people familiar with the matter said last week.

The banks are discussing loaning Fiat the money to purchase the 41.5 percent of the U.S. carmaker held by the United Auto Workers’ retiree health-care trust, said the people.

A merger is a key step in efforts by Sergio Marchionne, who runs both carmakers, to create a manufacturer with the scale to compete with industry leaders Toyota Motor Corp., General Motors Co. and Volkswagen AG.

Two-Step Deal

The Italian carmaker plans a two-step transaction, first buying the trust’s stake, and later refinancing the debt of both manufacturers at lower interest rates, the people said. Fiat may pay as much as $3.5 billion for the rest of Chrysler, UBS AG estimates. The two carmakers had 7.1 billion euros of net industrial debt combined at the end of March.

Marchionne is considering moving Fiat’s headquarters to the U.S. from Italy after the merger as the main revenue and profit sources shift to North America, three people familiar with the matter said last month. Chrysler said today that U.S. deliveries in May increased by 11 percent to 166,596 cars and light trucks, the 38th straight monthly gain.

No final decision on the headquarters has been made and other options are being examined, the people said. Fiat said the headquarters issue is not on its agenda at the moment. Marchionne said in April that he favored a primary listing in New York for the company. The merged company will have both Fiat and Chrysler in its name, Elkann said last week.

Ongoing Engagement

SGS will benefit from Marchionne’s “ongoing engagement” as chairman, Elkann said in the statement. Marchionne, 60, was CEO of the Geneva-based company from January 2002 until he took the top spot at Fiat in mid-2004.

Exor was the biggest investor in SGS. GBL Verwaltung, a unit of GBL, last month sold a 1.1 billion-euro stake in GDF Suez SA, Europe’s largest utility by market value.

“We have been privileged to have been able to support SGS throughout these past 13 years,” Elkann said in today’s statement. “We are confident the company will continue to develop.”

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