WE DON'T know if Fiat plans to solve its huge debt problem by selling a larger stake to Libya's foreign investment agency. But it must be tempting.
It also sounds dangerous. The US State Department won't allow American companies such as General Motors to do business with Libya.
The Libyan Arab Foreign Investment Co. (LAFICO) bought a large Fiat stake in 1976 when the Italian company was in deep trouble and needed cash. But it became a problem when America forced Fiat to get rid of the Libyans in 1986.
To buy them out, the Agnellis had to raise a lot of money fast. The shares were bought back at a record high price. Deutsche Bank, which tried to place most of the overpriced shares, had to keep them and became a Fiat owner by default.
Recently, LAFICO bought 2.27 percent of Fiat. Some see that as a prelude to a bigger stake that would remove Fiat from its current cash bind.
But if that happens and if the Libyans fall more deeply out of political favor, Fiat could find itself in another troublesome situation- especially now that GM and Fiat own stakes in each other. It would introduce complexities that Fiat doesn't need.
Still, why should another country, or a partner, dictate who owns Fiat shares? The Libyans would almost certainly be accommodating shareholders, allowing the Agnelli family to maintain control of the company even with its shares diluted.
Fiat has an obligation to shareholders to reform itself financially. It may not be a good time to sell off assets, but Fiat needs cash - even if it comes from Libyan oil profits.
Selling shares in Ferrari is another tempting idea, though much less lucrative than what the Libyans could provide.
Fiat has done an excellent job of managing the Ferrari brand over the past 33 years. It could continue to do so with only 51 percent ownership instead of the current 90 percent. Fiat already gives Ferrari special independence - a key reason for the long run of success in Maranello.
Fiat must repair its balance sheet fast. It needs to consider all the possibilities.