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Fiat hungry for new tie-up with Peugeot

Latest update : 2009-01-22

Just a few days after signing a strategic partnership with struggling US rival Chrysler, Italy's flagship carmaker Fiat is reportedly eyeing a tie-up with France's Peugeot-Citroen PSA and may seek to raise capital to this end.

AFP - Italian auto group Fiat is considering an alliance with French group Peugeot-Citroen PSA and may raise capital to this end, the La Repubblica newspaper reported on Thursday two days after Fiat tied a deal with Chrysler.

Fiat, and Peugeot-Citroen, declined to comment to AFP on the report.

"Even before the non-binding agreement with one of the Big Three in Detroit, (Fiat head) Sergio Marchionne and the Agnelli family were in the process of studying an operation which would have had the final objective of a marriage with Peugeot-Citroen," the newspaper said, quoting unnamed sources close to the matter.

With a view to a tie-up with French PSA, Fiat was believed to be working on launching an operation to raise capital of 2.0 billion euros (2.6 billion dollars) involving the conversion of preference shares into ordinary stock.

Auto groups around the world are being hard hit by the economic crisis that is causing buyers to cut back on purchases.

In addition, the big three US auto makers, General Motors, Ford and Chrysler, suffered heavily last year from a leap in the price of petrol (gasoline), which made their big-engined cars unattractive to consumers.

GM and Chrysler are now receiving US state aid, conditioned on restructuring and model renewal to ensure that they become viable.

The head of PSA, Christian Streiff, said in an interview with the French Le Figaro newspaper on Tuesday that "we are open to all sorts of alliances, but our absolute priority is to manage this crisis."

The Italian report said that the Agnelli family, which founded Fiat and holds one third of the capital, would contribute at least 600 million euros to the new issue so that its percentage interest were not diluted.

Meanwhile, the newspaper Il Sole 24 Ore reported that the Fiat group was believed to be in negotiations with a consortium of banks to obtain a line of credit amounting to 5.0 billion euros which could be used to finance alliances.

The Fiat auto activities form the major part of business by the Fiat group, a top industrial power in Italy.

The newspaper wrote, without mentioning PSA: "This based on a desire to keep the engines running in case new opportunities (for alliances) arise."

On Tuesday, Fiat and US group Chrysler announced a strategic partnership in principle under which Fiat would obtain 35 percent of Chrysler in return for products and know-how to enable the crisis-hit US group rapidly to develop small, fuel-efficient vehicles, and for the two sides to benefit from the other's distribution networks.

One Italian source said that Fiat had an option to raise its interest to 55 percent within three years.

Date created : 2009-01-22