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GM, Fiat to form alliance

DETROIT: General Motors Corp. and Fiat SpA said on Monday that have agreed to form an alliance that will leave GM with a stake in the Italian company's auto group.

GM will acquire a 20-percent stake in Fiat Auto in exchange for $2.4 billion in GM's common stock, while Fiat's stake in GM will amount to about 5.1 percent, the companies said at a press conference in Turin, Italy.

The automakers said they will save an estimated $1.2 billion annually by the third year, growing to $2 billion annually by the fifth year. The savings from the "strategic industrial alliance" will come in material cost cuts, sharing of engines and platforms, as well as greater efficiency in the companies' financial services operations.

GM said it will offset the new stock issuance through $2.4 billion in new repurchases of common stock which it expects to complete before year-end. Specifically, GM will increase by $1 billion to $9 billion the size of its previously announced exchange offer in which it will use GM Hughes Electronics stock to acquire GM common stock.

In addition, GM's board has authorised a new $1.4 billion cash repurchase programme to begin in the second half of this year. As a result, the deal with Fiat is expected to be accretive to GM shareholders within two years.

As part of the definitive agreement, Fiat said GM will have the right of first offer to buy the remaining 80 percent of Fiat Auto if it is sold in the future. The two automakers emphasised each will remain independent, and Fiat added Fiat Group's other sectors, including Ferrari and Maserati are not included in the deal.

The automakers said the deal is subject to anti-trust clearance in the United States and European Union.-Reuters